In a bid to empower entrepreneurs, the Government has doubled the guarantee capacity of the Bermuda Development Corporation (BEDC) to give small businesses “more access to capital”.
In a Ministerial Statement delivered in the House on Friday, the Minister of Economic Development and Tourism, Jamahl Simmons said: “The Cabinet has approved the increase of BEDC’s capital from $1 million to $2 million thereby laying the foundation to assist many more local entrepreneurs through doubling its guarantee capacity.
“Increasing BEDC’s capitalisation would also assist local businesses by creating an avenue and budget to provide access to capital directly from BEDC through direct loans as opposed to the only option being through Bermuda’s financial institutions.”
He noted that “many local small and medium-sized businesses need access to small amounts of capital under $20,000 which banks don’t historically provide as they are not very profitable and require the same amount of human resources as larger facilities”.
Given the BEDC’s successful track record on “its past direct lending programmes”, he said the BEDC has “assisted nearly 50 entrepreneurs”. “This increase in capitalisation will allow past programmes to be improved, re-instated, and expanded,” said the Minister.
“The BEDC currently offers a Loan Guarantee bank financing product for entrepreneurs to access in order to startup, sustain, or grow their local businesses. While not a bank, the BEDC has the legislative authority to act as an guarantor for portions of bank loans for small and medium-sized businesses that appear viable, and where the credit-worthiness of the borrower is sound,” he said.
“As the guarantor of last resort, BEDC’s current policy is that it can guarantee up to 50 percent of an agreed business bank loan amount up to a guarantee maximum of $200,000 per business. The Loan Guarantee helps if the business does not have enough collateral required to secure the loan.”
As it stands now, he said: “The guarantee is currently only provided for demand or term loans and not other bank products such as overdrafts, lines of credit, or credit cards.”
As of the end of August, within the 2017/18 fiscal year, Minister Simmons noted that the BEDC “has supported 25 businesses Loan Guarantees and Guarantee-backed Micro Loans helping these entrepreneurs to secure nearly $4 million in bank loans for their businesses”.
Currently, the BEDC’s direct loans to another 15 businesses total nearly $200,000″. “Doubling BEDC’s capitalisation allows it to assist many more businesses,” he said.
“Although it is improving since the Island’s recession, banks are still slow to lend to local businesses if bank loans are not 100 percent collateralised. The BEDC sees this in reality every day, which then this lack of lending contributes to a lack in business growth and job creation for the Island.
“In this regard, BEDC believes that increasing its maximum guarantee percentage would assist local businesses. Given the experiences from the recession, the Island’s financial institutions more often than not, will require loans to be 100 percent secured.
“Despite businesses receiving approval from BEDC for its Loan Guarantee, many businesses are not able to secure bank financing because they do not have the ability to come up with the remaining 50 percent in collateral to fully secure the loan.”
On that note, he said the BEDC is “currently exploring the viability of increasing its guarantee percentage beyond 50 percent up to 65 percent to a maximum guarantee amount of $200,000 of a bank loan which would reduce this gap for businesses”. The Minister also noted that “this option could be actioned as a policy change not requiring any legislative amendments”.
He also wanted to let the public know that the BEDC also has “a robust policy for paying out on any called loans and collecting on any loan guarantees it pays out on”. In the event that a borrower is unable to repay the loan, “the BEDC must make a payment to the bank for that borrower”, who is “then liable to the BEDC for the amount paid to the bank plus administration fees and any legal expenses incurred”.
Applicants approved will be required to sign “an undertaking agreeing to pay BEDC back if the Corporation pays out a defaulted loan on its behalf”. Mr Simmons noted that “this can also involve the use of the debt collection agencies and legal recourse with the courts as necessary”.
In closing he said the Government remains committed “build a fairer and better Bermuda”, to promote business and job growth to help boost the island’s economic recovery. He described his announcement as “another milestone for the Government and the Corporation”. Doubling BEDC’s capital, he said, will in turn “allow it to provide more financial products to Bermuda’s business owners and entrepreneurs” moving forward.