By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The finding that 99 percent of Bahamian firms had no interest in seeking debt financing in COVID’s aftermath was yesterday branded “irrelevant” by a small business adviser, who warned: “We have a new monster in the house.”  

Mark A Turnquest, of Mark A Turnquest Consulting, told Tribune Business that “the climate has changed significantly” for business financing since the outcome of that December 2020 survey that was referenced by an Inter-American Development Bank (IDB) report.

Confirming that funding availability for micro, small and medium-sized businesses (MSMEs) has improved markedly, with the Davis administration continuing its predecessor’s pledge of providing $50m annually over the next five years for a total $250m, he argued that the biggest impediment to accessing this is the post-pandemic condition of many companies.

Based on his own research, both talking to his MSME clients and as president of the fledgling 242 Small Business Association and Resource Centre, Mr Turnquest told this newspaper that many are still struggling to pay their bills and remain current with existing debt - never mind take on new facilities - due to COVID’s economic devastation.

“Access to financing is better, but it’s not an easy road,” he said. “It’s not a straight line. It’s not going to solve all challenges. It’s not a quick turnaround with access to funding. My interviews with a lot of small businesses in the past seven to eight months have shown there’s not only problems with shipping costs and inflation, but they’re catching hell with respect to operating businesses.

“That means a significant number of them are currently in bad shape with existing loans. There are a lot of outstanding loans with the bank... There are a lot of bad commercial loans that are out there, and that’s a hindrance and is preventing future loans. You’ll find a lot of companies are in big trouble because they have not recovered.”

Mr Turnquest added that many were also avoiding the banks and other lenders over loans that were either now in arrears or non-performing, rather than approaching them to restructure credit facilities or extend forbearance. This, he warned, will act against them by undermining their ability to obtain future credit they survive the present situation.

“They ain’t calling the banks and are ignoring the loan,” Mr Turnquest argued. “They’re damaging their future reputation and credit. The hurricane [Dorian] and pandemic, they’ve taken their toll mentally on some, and that is the worst thing that can happen to an entrepreneur - when you’re mentally crushed, and you lose hope to further your entrepreneurial spirit. This the worst I have seen in entrepreneur mentality.

“Shipping costs have gone up, light bill is going up, the cost of gasoline has gone up. Access to financing is not the problem. It’s the mental condition of the MSME owners; their ability to recover mentally from this debt they had before Dorian and COVID. Now, the cost of living and inflation is taking its toll.

“While there is access to funding, they cannot accept it because they have so many outstanding bills and the cost of doing business is so high. It’s very difficult for them to run a business now. We have a new monster in the house; high inflation, high costs, the mental problems with small business owners who cannot pay old debts or current debts,” he continued.

“Access to funding is strong. We have a lot of money in the bank. But we have a bigger problem. It’s like an oxymoron. We have money but people can’t qualify. That’s the reality right now.” The IDB, in its latest quarterly bulletin, had referenced the findings from a survey of Bahamian businesses - largely conducted in December 2020, just after COVID’s peak when restrictions were still in place - which showed 99 percent had no desire to take on debt financing.

“Only 12 percent of these firms believed that they had sufficient capital,” the IDB said. “The remainder did not apply for credit for several reasons, including collateral requirements (11 percent), unfavourable interest rates (13 percent), and complex application procedures (11 percent).

“Micro, small and medium-sized enterprises are particularly vulnerable to these concerns because they are less likely to have a dedicated team or person to handle complex loan applications (which may also include Know Your Customer requirements), more likely to be asset-light (especially in an economy that is service-oriented), and more likely to be seen as risky and thus warrant higher interest rates.”

While The Bahamas’ first-ever credit bureau could help lower collateral requirements and interest rates for MSMEs with a solid business record and credit history, the IDB said the benefits could be limited to just companies that already “have substantial creditworthy relationships with utility companies, contracts with suppliers, and/or long-term rental agreements”.

Mr Turnquest yesterday said that MSMEs with sound business plans and/or financial projections, and backed by credible financials and intermediaries who were advising them, are able to access credit either directly from lenders or via government agencies such as the Small Business Development Centre (SBDC), Bahamas Entrepreneurial Venture Fund and Bahamas Development Bank.

The IDB, though, noted that just 42 percent of MSME respondents to the December 2020 survey confirmed their financial statements were subject to an external audit, which added to the difficulty of accessing the formal capital markets and other financing forms.

Personal/consumer loans were shown to account for around three-quarters of total outstanding Bahamian credit over the four years between 2018 and 2021, although this share had declined slightly from 75 percent at the beginning of the period to 71 percent at the end. This was not broken down between mortgages and consumer credit, with the private sector and the Government both enjoying a 14 percent share.

With the report implying that insufficient capital is being directed to the Bahamian private sector, the IDB said: “Although the share of credit as a percent of GDP has stayed relatively steady for the last five years, access to and the cost of finance, especially during the pandemic, has worsened drastically since 2014.

“In 2014, 28 percent and 11 percent of Bahamian firms said that access to, and the cost of finance, were major or very severe obstacles, respectively. By December 2020, these figures almost doubled to 52 percent and 19 percent respectively, according to Compete Caribbean’s Innovation Firm Performance and Gender (IFPG) Survey.

“The decrease in the perceived access to and cost of finance is not surprising considering the unique macroeconomic conditions, and the fact that domestic banks were broadly tightening their balance sheets in preparations for expected defaults and increase in non-performing loans.”