Fri | Jan 21, 2022
ADVISORY COLUMN: SMALL BUSINESS

Yaneek Page | Here’s what entrepreneurs need to know to access funding

Published:Sunday | December 5, 2021 | 12:07 AM

QUESTION: I recently open an export company and am in the process of getting my export licence, after trying so hard to get a packaging warehouse. I believe I have a great business plan. I have a few loans and, as such, I was trying to get a debt consolidation loan and use the balance as working capital. But guess what, I can’t move one inch, ‘cause I’m unable to get a cent from the institutions that I visited, including Development Bank of Jamaica and a couple others. I’m a person who will go extra miles just to seek relevant information that I may find hope in.

– No Surrender Reader

BUSINESSWISE: Let me first acknowledge that you have a wonderful ‘never give up’ attitude that will serve you well on this entrepreneurship journey.

You will need to summon that spirit to first digest, and then plan your next steps if you intend to act on the advice I’m about to share.

To find solutions to your challenges, we must first be clear on the problem. It seems you believe that access to finance is the major issue at hand, and that simply providing a list of more potential avenues for cash will suffice. However, I think access to financing is merely a symptom, and that your major issue or problem is inadequate business knowledge and skills, particularly in the areas of financial management, strategic planning, decision-making, risk management and business communications.

As a former risk officer and micro and small business loans officer, these red flags jumped out at me immediately. In fact, you have not expressed clearly what your ask is, or put another way, exactly what you are asking for in your message to me.

Being able to express yourself clearly is essential for doing business, whether with customers, potential partners, suppliers, and certainly with your funders. Until you resolve these significant deficits in business leadership, you will likely struggle to access capital and financing, whether debt or equity.

What to do

If you want to access financing, then you must study and meet the criteria that financiers, whether lenders or investors, use when deciding to open their purse strings. Ultimately they would want to be assured that their money will be repaid on time and in full, or that they are able to recoup their investment with the profit within a specified time and over a specified term.

Your integrity, character and capacity will usually take centre stage, not just the business concept or idea. Therefore, the criteria would typically include the following 10 items, which is not an exhaustive list:

• The financial history and personal credit worthiness of the principals of the business;

• Credit history and credit worthiness of the registered business;

• The viability of the business model and business plan;

• The team that will support and drive the execution of the business plan;

• Business environment, competitive landscape, trends and market dynamics;

• Financial projections and supporting assumptions;

• Financial performance of the business;

• Risk analysis;

• The capacity of the business owner; and

• Contingencies such as collateral in the event that the business is unable to repay the loan or deliver on the investment.

Most importantly, financiers will usually insist on tangible proof, or verifiable information that can support the 10 items. Let me also emphasise that if you are a team of one, meaning you have no partners, senior managers, or board of directors or advisers, then it is even more precarious and risky for funders.

Your objective and plan of action should include attaining the criteria mentioned and being able to show the requisite proof.

You may now believe that it would be very difficult for a start-up or micro business, led by a founder who is new to entrepreneurship, to meet these requirements. You would be absolutely correct in that assessment.

Wrong trajectory

Generally speaking, new businesses or start-ups are unattractive for financiers because many lack the appropriate skills, knowledge, expertise and experience, and unfortunately the data regarding their trajectory is not favourable. To be blunt, it’s very bad.

Start-ups have a high rate of business failure globally. In Jamaica, it is estimated that more than 50 per cent of businesses will fail in the first three years, and 70 per cent will close their doors within five years of launching. This is very high risk that most savvy investors and financiers can’t ignore, and actively avoid. In fact, they are usually very keen on early identification of the tell-tale signs of failure, many of which you have already displayed. For example, you have already taken several loans to finance a business that does not even have a permit to execute its operations.

You are now starting from a position of being highly indebted before the business has even attained proof of concept. It means that you did consider the comprehensive needs of the business and that you have not planned properly, putting yourself and the enterprise under immense early pressure to service outstanding loans when the cash flow clearly is not supportive. This is poor planning and investors and lenders would justifiably be wary of ‘throwing good money after bad’ in the circumstances.

I know this may not be the advice you were looking for, but I can assure you it is the advice you need. I am encouraging you to use your ‘never give up’ attitude and build your capacity to manage a business and the finances of the business as a prerequisite to opening shop and accessing funding.

The best thing about knowing the real problem is that you won’t waste time or resources seeking funding you may be rejected for because you lack the fundamentals. Solving the root cause will not only open doors to the capital you need, it will also increase your likelihood of business success.

Good luck and one love!

- Yaneek Page is the programme lead for Market Entry USA, a certified trainer in entrepreneurship, and creator and executive producer of ‘The Innovators’ and ‘Let’s Make Peace’ TV series. yaneek.page@gmail.com