One of the biggest challenges for small businesses is certainly access to funding, whether it is to start or help to expand a business. I recently conducted a lengthy interview with Mr Sean Brennen the Bahamas Entrepreneurial Venture Fund’s administrator. The BEVF provides loans and equity financing for local entrepreneurs. Check out Part I of my interview  where he outlines some of the core criteria to accessing funding and why the Fund is high on equity as opposed to loan financing. You can also find out more information about the Fund by checking out its page here.

What is the BEVF all about in terms of its mission and as a financing option for Bahamian entrepreneurs in the Bahamas?

“We seek to invest in, we don’t give money away but we seek to invest in Bahamian businesses. We are not Nassau centric. We want to go to the family islands as well. We are looking for ideas that are creative. That means that the same old same old are not the type of projects that interest the Fund. We are a venture capital group, not a bank. We look at how a project can stand on its own merit and whether it’s a viable venture.”

What criteria do persons have to meet to access financing?

“We look at three core criteria that have to be met. One is the viability and that speaks about the internal or the micro components of the operation, whether there are controls, whether there is a commingling of funds, whether the company is incorporated. We do not fund tuck shop operations. We look to see how a business is competing in a competitive environment, what’s your pricing strategy, who your target market is. We really try to determine the viability aspect to see if you understand the dynamics of the operation you are in. A lot of businesses fail for a lack of planning and research and the research extends to the competition.”

“The second thing we look at is the sustainability of your operation, what is it going to take in terms of break-even. We need to know at what point in the month the applicant stops paying costs and starts making a profit.”

“Thirdly, we look at the potential profitability of a venture. That is what goes into our assessment. Our investment is based on that, is it innovative, creative, if there is a niche in the market for it. This is really what makes us so unique. In doing this we need to determine whether the applicant truly understands what they are doing. Not because you can cook means you can run a restaurant.”

“There are three additional questions we ask, one is why you? That speaks to a person’s skill set, their expertise, the passion and drive an entrepreneur has toward their project. We also ask why now. Why now two years from now and this also speaks to filling a void before someone else gets there. We also ask why this particular product or service.”

How much financing can one access via the Fund?

“There are two funding mechanisms that the Venture Fund has in its portfolio, one of which is a loan.  I would go out on a limb and say that our rates are the best available for businesses. Our rates are based on the central Bank of The Bahamas’ prime lending rate of 4.75 per cent and we are three points above that. We are at 7.75 per cent.  We can provide you a 90 day grace period and the loan can run five years. Our buy-in to a project is approximately $50,000. Based on that we will entertain applications which are at approximately $50,000 and we have a ceiling on the loan of $100,000.”

“We’re in our 11th year of operation and often times we find that a loan is just another line item of expense and often times companies don’t realize it and think they can manage it because they are looking at what’s on paper. Often times they don’t think about the unforeseen that’s not written on paper. Equity is nothing more than us being in a position to assess your company and being able to purchase shares in your company.”

Why is the Fund so high on equity financing?

“We think this is a more viable option for local Bahamian businesses. We say it’s a better option because under a loan scenario, you get a loan and you agree to repay a certain amount of money every month. That’s a legal document. That doesn’t come with a legal advice and a board to assist you. When you default on a loan we are more lenient than any bank multiplied by 10 in terms of working with an applicant but there will come a point when the board will direct my office to pursue legal action. From an equity perspective we are going to help you as best as we are able, meaning we will take on a board position.”

“The company will have to be incorporated and we will provide additional funding to make sure it’s incorporated if it was not part of the needs you presented to us and we will have a seat on your board of directors whenever they meet. With an equity position there are no loan payments. We provide seed money which could be up to $200,000 and watch it grow. As the company grows and appreciates in value the entrepreneur can say they want to buy their shares back and we can get paid our investment back at a premium which is based on negotiations. It’s not hard math, it’s not just one big cheque; that would be sabotaging a company. We will not go to the open market and try to sell your shares for a better price. We determine a company’s value based on its hard assets, the good will established and we look at what the potential earning of the company would be in terms of sales over a 12 month period.”

Read Part II of my interview next week.