Thursday 23rd June 2005


DFL seeing T&T boom

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Development Finance general manager Prakash Dhanrajh admitted recently that the company has a “selfish motive” for helping companies that may not be attractive to banks.

“If we could get hold of these companies and make sure they are properly set up, they will come back to us for more business,” he said.

The company is seeing a pick up in the T&T economy first hand, with clients coming from a number of sectors, from manufacturing to cleaning services to agro processing.

There are also a number of individuals who approach the company to expand. People who offer transportation or welding services, for example, who use DFL to buy new equipment.

Dhanrajh doesn’t see anything wrong with lending to individuals who are not incorporated.

“If you’re talking about encouraging business enterprise, you have to encourage business first before you formalise,” he said, adding that incorporation can be expensive.

There is a certain amount of risk in dealing with people who might not qualify for commercial bank loans. DFL, in fact, charges for that risk, usually one to 3.5 per cent above prime, but small businesses are usually more knowledgeable about the industries in which they operate.

“One of the key things about lending to smaller businesses, with big businesses they might be going into unfamiliar territory,” Dhanrajh said. “With smaller businesses they know already. If someone came to us who knew nothing about fabrication, for example, we probably would not touch them.”

While DFL does take an equity position in some of its clients, the company usually prefers to go the loan route. Even when there is equity participation, there is usually a debt component to the deal.

“It should really be a last resort,” Dhanrajh said, adding that when things go wrong, lenders are the first to get their money. As an owner of the company, DFL would have to hope that there is money to cover its investment.

“The concept of equity is that it has to be best way of getting money.”

In many cases the money to invest comes from DFL’s Emerging Enterprises Venture fund, a trust fund that supports short-term and long-term loans and some equity investments up to $250,000.

The eligible businesses have to have an asset base of less than $2.5 million excluding land and buildings.

The company was unwilling to divulge how much the fund is worth but business analyst Gerard Edwards said it is self-sustaining.

As required by law, the fund expires in 2030. At that point DFL will either renew it or look for somebody else to take it over.

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