better business plans and financial controls -- Greater discipline and skills are being demanded of entrepreneurs as they seek cash to get their small businesses off the ground, reports Ahmed ElAmin It's becoming tougher to get a start up loan for a small business these days as indicated by figures provided by the Bermuda Small Business Development Corporation.

The figures show a marked shift in lending patterns to small businesses over the past four years (see charts). The Government-funded organisation guaranteed loans totalling $175,000 to nine businesses in 1998 compared to a record $750,000 to 24 businesses in 1996. The organisation guaranteed about $660,000 in loans to record 36 businesses in 1995.

Corporation chairman Raymonde Dill said the drop was due to tougher financial and business plans required by the banks for loan applications.

"It's a sign of times,'' Mr. Dill explained. "The financial institutions have clamped down enormously on lending policies. They are looking harder at their bad loans on their books. The result is that fewer people are looking for loans because they know the demands are tighter. They are aware that they need more quality reporting, more completeness, and more back up information compared to previous years.'' He said the organisation was in turn alerting entrepreneurs they needed more stringent financial controls, and a better business plan before they put a proposal on the table.

"We need the information so as to be able to state that they are managing the business,'' Mr. Dill said. "Where they are not, we help them get there.'' Under the guarantee scheme the organisation guarantees not more than 50 percent and up to a maximum of $100,000 for any one business getting a bank loan. If the business defaults the organisation is on the hook to the bank for the amount guaranteed.

A total of 425 loan guarantees have been made since the organisation started in 1981. The organisation currently has on its book loan guarantees totalling about $2 million to 93 businesses.

Into the picture comes the organisation's joint venture equity programme with the Bank of N.T. Butterfield and Son Ltd. Under the programme the bank will provide an injection of up to $500,000 in venture capital funding to a business, either for startup or expansion. "There is a greater need for alternative sources of capital,'' Mr. Dill said. "Now we have two arrows to our quiver.'' At least ten percent of the funding will be in the form of a loan guaranteed by the Bermuda Small Business Development Corp. The rest of the money will be the bank's equity stake in the business. The bank intends to recover its investment when the business can repay the capital, or when new shareholders buy out the bank's ownership interest.

Entrepreneurs will be required to submit applications under the programme to the Bermuda Small Business Development Corp.

Mr. Dill said the programme would require small business entrepreneurs to adapt the way they run their business.

Under the equity programme potentially more money is being made available to any one business in the form of equity rather than debt.

"A different mindset is required of the entrepreneur,'' Mr. Dill explains.

"The money is available to help business expand or get off ground. It's interest free and is far less of a drain on the business than a loan but it's equity capital. It brings some more discipline and skills.'' When the programme was announced last year the organisation received about 25 enquiries from interested entrepreneurs. A small portion had the documentation required. The number was whittled down to three proposals currently being considered as candidates under the new programme.

The programme is part of changes the organisation is implementing to meet the needs of the small business community. A survey was conducted last year, asking the small business entrepreneur what the problem areas were for them.

Harder to get small business loans In general the survey found entrepreneurs were concerned about the difficulty in getting hold of capital, how to react to change and competition in the market, and how to keep track of finances.

While these results were predictable, Mr. Dill said the details provided would allow the organisation to better manage the job of fostering small businesses.

A plan of action based on the recommendations in the survey had to be put on hold until after the elections.

The new board put in place after the change of Government also needed time to study the survey report.

An action plan which involves Government, private firms and the organisation is currently being formulated by a board subcommittee.

"We want to focus our energy and quantify what the organisation is doing,'' Mr. Dill said.

He notes that the fall off in loan guarantees is not an indication of the amount of business plans being generated by entrepreneurs. It's helping the entrepreneur turn that vision into an economically viable business that's the problem. That's where the organisation hopes to make a difference.

Raymonde Dill