Business Editorial

The bank’s manager explained that these requirements help the bank to determine both the level of efficiency with which the borrowing business is run as well as the nature and extent of the lending risk which the bank is about to undertake.

Small business operators and small business aspirants across the country have, for several years, been complaining about what many believe has been a generally negative posture on the part of local commercial banks towards lending for modest business ventures. Their primary grouse has to do with the banks’ lending conditions, which, the would-be borrowers contend, cannot, in many cases, be met by small struggling businesses. They point out too that since the vast majority of the local business sector comprises small businesses, it follows they contend, that commercial banks ought to assume more accommodating lending postures if they are really concerned about their role in helping the local economy to grow.

The banks, for their part, have been quick to point out that prudent management of risk lies at the very heart of their lending policies and that since, in many cases, the risks involved in lending for small business purposes are somewhat greater, that is all the more reason why their risk management systems must be both more efficient and more effective.

In effect, the bank continues to have an interest in helping to facilitate micro business loans while not actually administering such loans directly as a part of its own operations.

Recently, however, welcome evidence has emerged that the banks and the small business lending lobbyists have reached a modus vivendi which, allows for somewhat greater access to loans for small business ventures even though there still appears to be a lack of real clarity as to exactly what constitutes a small business and what does not. What has certainly been evident on the part of the commercial banks is a much more open and aggressive posture towards advertising their small business lending services. In fact, we learnt from the manager of a leading commercial bank with whom we spoke recently that its posture towards small business lending in Guyana is a microcosm of a global recognition on the part of the bank’s externally based headquarters that small business is the way of the international business world – so to speak – and that supporting small business development is the direction in which the bank seeks to go, globally.

In that interview, the bank’s manager also sought to draw a measurable and what we found to be a helpful distinction between what – from that particular bank’s perspective – constitutes a small business and what may properly be defined as a micro business. In this particular bank’s case it has simply handed over its entire micro business portfolio to another agency which it believes is better equipped to manage that portfolio while retaining some measure of interest in the operations of that agency and continuing to offer advisory services to small as well as micro business operators. In effect, the bank continues to have an interest in helping to facilitate micro business loans while not actually administering such loans directly as a part of its own operations.

“We learnt various other things about the disposition of commercial banks to small business lending which we found instructive. We were told, for example, that very often, while some of the grouses of small business borrowers had to do with collateral-related lending conditionalities, the real problem, frequently, had to do with difficulties faced by potential borrowers in meeting the discipline-related criteria which are vital to the efficient and effective management of a business and which, the manager says, must be met, if consideration is to be given to lending. In this regard, he said, the policy of one commercial bank is really no different from another.”

Among the criteria set out by the bank in question for access to lending under its small business scheme are various types of financial information including verifiable income statements, balance sheets, letters from major customers, breakdowns of balance sheets, explanations in fluctuations in accounts year-over-year, details of current and previous bank borrowings, copies of all bank statements for accounts related to the business in question and asset details. The bank’s manager explained that these requirements help the bank to determine both the level of  efficiency with which the borrowing business is run as well as the nature and extent of the lending risk which the bank is about to undertake.

It is of course no secret that some, perhaps many of our local small businesses would be unlikely to produce these credentials on demand and that having made their initial approach to the bank they are then compelled to spend long periods painstakingly piecing together the required information. As the bank’s manager explained this, very often, is where the rubber hits the road, where potential borrowers discover to their consternation that their own operations are considerably distant from that which constitutes an effectively run business.

a small business in Guyana, is simply an operation that comprises, solely, buying or producing, on the one hand and selling on the other and that those various administrative requirements that make a business a business are absent from the operations.

The bank is not the first financial institution to have pointed out to this newspaper that what, very often, is termed a small business in Guyana, is simply an operation that comprises, solely, buying or producing, on the one hand and selling on the other and that those various administrative requirements that make a business a business are absent from the operations.

What the particular bank has sought to do (and we understand that other commercial banks are pursuing the same practice) is both to set up internal business advice structures and to partner with other specialized agencies to help prospective borrowers put themselves in order – so to speak – as far as meeting eligibility criteria for lending is concerned. Here, one gets the impression, that a significant opportunity has now been created for greater small business access to commercial bank lending and that, simultaneously, an opportunity has also been created for the transformation of a culture of half way house small business operations which simply focus on buying or producing and selling without, from time to time – as the bank manager puts it – even seeking to determine whether or not they have made a profit.

At this juncture account is taken of the point that is frequently made by small operators that the size of their operations do not allow for the creation of administrative systems which are, in some instances, both costly and time-consuming. However, the bank manager was quick to point out that modest and less costly systems are entirely possible and that at any rate to fail to put such systems in place is to run the risk of falling at the first hurdle when applying for a bank loan or even to court eventual business failure altogether.

One is unsure as to how many institutions actually exist that can help prepare small business operators for engaging commercial banks. Apart from the business orientation services provided by the bank itself the two institutions that come readily to mind are the Institute of Private Enterprise Development and Empretec. The point is, however, that apart from the existence of institutions that are concerned with teaching small operators and potential operators how to  run a business efficiently, the small business aspirants themselves must seek to change what, in many instances, sometimes appears to be an aversion to doing business the right way. The actualisation of the provisions of the Small Business Act can play a role in establishing a regime that compels small business operators to be more mindful of proper practices and procedures. When that happens, the bank manager says, aspiring lenders are likely to find commercial bank borrowing a far less daunting prospect.

http://www.stabroeknews.com/2010/business/07/30/commercial-banks-and-small-business-lending/