News Americas, NEW YORK, NY, Fri. Feb. 24, 2022: The economies of many Caribbean countries are struggling during this long tail end of the pandemic. Economic crashes were inevitable the moment countries had to go into lockdown, and they occurred around the world. However, while wealthy countries have mostly recovered (and some are doing better than ever), poorer nations are battling to turn around the tide.
This is true throughout the Caribbean, and there does not seem to be an end in sight. The World Bank has written ad nauseam about the potential trouble we will continue to face for years to come. The UN’s Economic Commission for Latin America and the Caribbean has called for greater solidarity in the region to address this. But how and when we will begin our recovery is still unclear.
Within this context, many entrepreneurs in Caribbean countries are holding off on starting new businesses or restarting businesses that did not survive the pandemic. Plenty of those who had capital lost it all in the long months of lockdown. Those who would have gone to lenders are wary of taking out loans in a time when nothing is certain.
Unfortunately, this hesitancy to start businesses keeps the sector bare, which consequently strips the economy of the various countries of their potential. There is a cyclic nature to this decline, which cannot be arrested until individuals, corporations, and governments decide to take more risks.
Risk is necessary in all economic endeavours. Even the most stable “risk-free” businesses were not prepared for the pandemic. However, it at least seemed easier to assess risk before the pandemic changed our perceptions. Now, many entrepreneurs wonder if there is any point to putting themselves in financial straits if all signs point to economic failure.
The good news is things are not as bleak as they seem. There is still tremendous potential in the Caribbean for new businesses, including in industries that were actually buoyed by the pandemic. And even though entrepreneurs may not have capital available, there are still ways to finance a business while minimizing risk.
In 2022, these are some of the ways businesspeople in the Caribbean can access financing.
Secured loans have always been one of the most sought-after sources of business financing. With secured loans, the security or guarantor lessens the risk taken by the lender, which allows them to provide low interest rates. For the borrower, the risk of losing the security is not as great as the risk of ending up bankrupt due to a build-up of interest and unpaid debt.
Secured loans in the twenty-first century are a much smaller proportion of the business loans given than ever before. This is largely due to the increasingly digital or virtual nature of businesses. Whereas a hundred years ago, most businesses did not exist if they took up no physical space, most new businesses today exist only online.
For businesspeople in the Caribbean in 2022, however, digital does not need to be the way forward. On the contrary, the region is still resource-heavy, and there are many business opportunities that require property or equipment.
Expensive equipment can be the perfect security for new business loans, with business equipment financing companies ready to provide low interest rates. To an extent, businesses that require heavy machinery are somewhat safer bets. After all, if the business fails, the equipment is repossessed, and much of the debt can be written off.
There are rules to be followed when getting equipment financing. No matter how much your business evolves – and even if you no longer need the machinery – you “can’t dispose of equipment until loan is paid off.” This is according to the comprehensive information made available by Business Loan Companies. There, you can also find a calculator which will help you understand just how much your business equipment loan will cost.
If you cannot get a secured loan due to a lack of a necessity for assets, an unsecured loan is the easiest option. However, it is much riskier. Unsecured loans come with high interest rates that would be difficult to afford even in a thriving economy. All good entrepreneurs look at other available loan options before turning to unsecured loans.
One option for a safer unsecured loan is a business line of credit. A business line of credit works almost like a credit card. Instead of getting a lump sum of money which you have to start paying off immediately, you agree to a certain amount being made available at a particular interest rate. Then, you use it only when you need it. Instead of paying off the whole amount, you only pay for what you use. This minimizes the cost of the loan.
Of course, if you end up burning through the cash available, you will end up paying for the whole sum anyway. A business line of credit is a good option for those who know they will be able to make do on as little as possible.
The ideal funding for a business is funding that you do not have to repay. Angel investors or venture capitalists are individuals or companies who provide funds because they believe that your business will be successful. You agree that they will receive a certain proportion of the profits or own a percentage of your company. They provide the capital with no conditions for you to pay it back (unless you grossly misuse their funds).
While you can search anywhere in the world for angel investors who might want to fund your project, you can start in the region. Almost a decade ago, the World Bank started an initiative called infoDev. Under infoDev, the Entrepreneurship Program for Innovation in the Caribbean (EPIC) was formed, which provides early stage financing for small businesses.
An important characteristic of the best angel investors is that they provide more than just money. They also provide mentorship and resources to help entrepreneurs succeed, as they have skin in the game. EPIC provides mentorship to business owners in a similar way, even though the program was started by an international institution rather than investors who saw opportunities to make money.
Going through a program like EPIC is ideal for many entrepreneurs who will benefit from the resources and the low-risk funding source. However, EPIC will not be ideal for everyone. There are some businesses who will work best with more opportunistic angel investors. These business owners should look for investors in their country and in the region. If the business is global and runs digitally, there is no reason to limit yourself to angel investors at home.
The economic recovery of the Caribbean will require some risk-taking from individuals and institutions. Entrepreneurs who have held off on starting their businesses should consider looking for low-risk sources of financing. There will never be a perfect time to start a business, but if no one takes the risk, the window for any opportunity will close.