Dr Judith MS Mark
Many SMEs in TT face challenges securing the necessary funds to expand operations, invest in new technologies and navigate market fluctuations.
Ensuring that these enterprises have access to adequate financing is essential for fostering a vibrant economic environment, promoting entrepreneurship and achieving long-term economic stability.
Thirty per cent of small and medium-sized enterprises (SMEs) in Latin America and the Caribbean (LAC) have identified access to capital as a challenge, compared to a 12 per cent rate for developed countries.
The situation for SMEs in TT mirrors the LAC region, indicating the need to address the issue of access to capital, given the importance of the sector to TT's economy.
Further, various studies indicate that SMEs in TT account for 35 per cent of employment and 30 per cent of GDP.
Why do SMEs in TT face financing challenges and how can these be addressed to ensure sustained growth and resilience?
The challenge of access to finance is often rooted in issues other than the availability of capital – the firm’s philosophy, leadership, governance and growth strategy impact capital adequacy and suitability.
To ensure that SME financing is inherently strategic, consideration must be given to the following:
• The financial ecosystem.
• The internal environment – philosophy, leadership and governance.
• The SME financing strategy.
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TT’s financial ecosystem
The source of SME financing in TT can be classified into two categories based on usage.
Frequently used:
• Debt Financing
• Personal Funds
• Grant Funding
Not frequently used:
• Third-party equity
• Venture capital
• Angel investors
• Crowdfunding
• Peer-to-Peer (P2P) lending
• Supplier financing
• Invoice financing
• Stock market
Bank loans are the main form of external debt among SMEs in TT.
Although excessive debt can lead to a firm’s demise, debt – well-placed within a firm’s capital structure – provides an impetus for growth.
Grant funding is primarily accessed by smaller SMEs and for special projects.
Under the Ministry of Trade and Industry’s Grant Fund Facility, funds are available for R&D, export readiness and skills development.
For the less frequently used sources, there is a dearth of structured private equity and venture funds, angel networks and crowdfunds.
A review of the TT venture capital industry indicates that incentives under the Venture Capital Act 2004 did not yield the desired results.
Notably, Jamaica, which initially lagged TT in the venture capital market, expects to raise over US$95 million in 2024.
There is little evidence of SMEs' knowledge and use of peer-to-peer lending and trade credit in TT.
SMEs seeking to scale up can also raise capital by listing on the second tier of the local stock market, although, the listing criteria are onerous for many.
However, given the available incentives and inform
