From The Editor
In last month’s edition I gave the reader a first glimpse
of the new lending policy of one of our two leading commercial
banks, namely BANK OF VALLETTA PLC .
According to the bank chairman’s address at a meeting with
accountants held specifically for this purpose, the aim of the
bank is that, in future, entrepreneurs would be required to put
more of their own money into any new venture than has been the
custom in the past.
It is true, that prior to this new policy it had been quite an
easy matter to get loan finance from the banks in Malta. If one
had a good project and also had enough property to use as security,
it was rather a straight forward affair to convince your bank to
finance up to 70%, and sometimes even more, of the needed capital.
And this finance was obtained at very reasonable rates when compared
to that of our European competitors.
All one needed to present the bank was a good business plan wherein
it could be shown that the project had good potential of earning
enough money to pay the bank the pre-determined monthly repayment
programme.
Such an easy method of finance has encouraged many people with
good ideas to make their dreams come true. And this was one of
the major factors for Malta’s economic boom during the past
25 years. Finance for any good idea was easy to obtain.
With the new policies being introduced, entrepreneurs have to
find more of the required capital themselves. Since this may not
always be that easy, it will mean that they have to consider taking
on investors who can come up with the required cash short-fall.
It is not very easy to convince the Maltese businessman to take
on an outside investor. To-date they have always looked at the
banks as a safer partner.
An investor, once in, is very difficult to buy out. What is more,
such investors would, most probably, insist on getting involved
in the day to day decision making. For many a Maltese, this goes
against their culture.
However, this is a culture that has to change. Taking on a partner
need not be a risky business if one were to seek appropriate advice.
What is more, often such investors would be happy with a fair return
on their capital which comes in on a regular basis, and would not
insist on getting involved in the day to day business affairs.
In other words, such finance could come in cheaper than commercial
banks’.
Also, with EUROPEAN UNION membership looming closer every day,
many small businesses have to look for partners with whom they
can reap economies of scale to survive.
As far as the banks themselves are concerned, our office has always
advocated the need for such banks to invest in the training of
SPECIALISTS in various industries. Such specialists would be available
to review specific projects in which they have the required expertise
originating in any part of our archipelago. At present, the same
people review all projects originating in their areas irrespective
of the industry involved.
If the above were adopted, it would lead to lower risk for the
banks, faster processing of applications and perhaps, lower interest
to the customer.
Regards.
GeorgeFarrugia
The Business Promotion Act
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