Businesses ‘lacks financial literacy’

 MANY small businesses in the Pacific which have operating for years still lack financial literacy, a research has revealed.

Pacific Business Investment Facility adviser Peter Bennett said researches into small business activities in the region had revealed very little or no understanding of how business really worked.

He said this included limited business management skills and the lack of financial records.

“Even though they have been in business for more than six years, they still get to that point where they seriously need to borrow money to take their business to the next level,” he said.

“But they do not have proper records to show commercial banks.

“They may have run that business for many years, have transactions, but do not have years of expenses, income, profit-loss, balance sheets, purchase of assets – there are no records kept.”

Consequently, he said “the bank cannot properly analyse the business” and allow it to borrow money.

Bennett said even if businesses produced enough security, their owners and managers would not understand how to look after the entities.

He said in such situations, businesses would then be forced to hire a bookkeeper to review and reconstruct the last three years of records for the bank to analyse.

He said many businesses lacked the knowledge and ability to put together a proposal to borrow money.

“The biggest challenge in the Pacific is how to manage equity and there is mountain loads of cash to lend but banks cannot do it out of their lending criteria,” he said.