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McCarthy Marie
McCarthy Marie

This article is a submission to a CAPE Music Business Programme. It is timely in this Covid environment as it provides some introspection to would-be entrepreneurs in the creative industry on the issue of financing their business venture.

In the Dominican context I will explore the ways in which one can finance business enterprises, particularly from the perspective of the creative industries. There are really two types of financing available: debt financing and equity financing. I will explore the two beginning with loans from banks and credit unions, still the most common approaches.

Loans

One of the ways one can finance a project is through loans. Of course one has to convince the lending institution that the project is feasible by providing a business plan; also you must have sufficient collateral that the bank can, for instance, hold as security should you fail to pay your loans.

Apart from the contractual obligations to pay back, at times over extended periods and interest rates which are prohibitive, loans are very impersonal and you are sometimes left on your own to see your project through. In Dominica this may require substantial security such as land titles and other property depending on the size of the loan that you requested.

In the article titled 'Economic and legal advantages to business financing through the issuance of bonds' the author states that 50-70 percent of financing is via external sources.

The type of business unit or the organization to be established is important when such considerations are made. Sole proprietorship affords the owner complete control of decisions and profits but he/she also has to contend with losses. As there is no limited liability clause the sole trader is exposed to unlimited liability where he bears all the risk associated with the business to the extent of his personal assets because there is no distinction between the assets of the business and his personal belongings. Nonetheless, in this part of the world autonomy and control seem to be the preferred option. It must also be noted that loans have been tailored in such a way that persons can obtain the money. If payback, documentation and red tape is prohibitive then no one can or will access it.

Partnerships

While partnerships have the potential of including many partners, capital and skill being brought into the business and levels of losses are shared by the partners, partnerships are loose and not formalised by any agreements and this in turn leads to many disagreements among partners which hinder the progress of the business. Bonds have been broken due to disagreement in the sharing of profits. Hence, the success of a partnership depends on the ability of partners to work harmoniously together.

The public company where persons are invited to put in share equity provides another opportunity that we will now look at.

Equity

Equity is a popular means of financing projects where investors put in their cash hoping the return on investment will pay the required dividends which for many is about of 15%. Investors may be more tolerant than banks as they have a vested interest in the project. However, as has happened in Dominica (for example, Marpin TV) one runs the risk of the project being overrun by investors who may eventually invest more than the 51% required for control and you may well find that the business that you started is no longer yours.

Over ambition and diseconomies of scale can set in overtime and you can find that you are no longer the majority shareholder. One of the great advantages of equity finance is the fact that there are no monthly loans to repay; hence, this burden is lifted as dividends, which are paid annually, are based on profitability. This is one of the major positives of the public company. One can also have the greatest possibilities of investments as the ceiling of 50 shareholders allowed among private companies does not exist in the public domain where there is no ceiling on equity shareholders. However, a board of directors sets the policy guidelines for the businesses in each case and since the persons who have the most investment have the bigger say in policy direction membership interest can be stifled. In fact, big interest groups have been known to dominate decisions and buy over the shares of smaller shareholders within the organization.

Creditworthiness is also no longer an issue because with good business partners you can grow and learn from each other. However, in the disadvantage column loss of control, the sharing of profits and disagreements can sour to the extent of litigation in some cases to the further detriment of the business. Therefore, according to the Hartford business owner's playbook journal (2021) if one feels strongly about sole ownership or that the business indications suggest great profitability, you may opt for debt financing instead of going the equity way where you retain control of profits, taxes and are able to plan based on ready information. Cooperatives

Due to the one-man-one vote principle which has become the hallmark of cooperatives they at one time enjoyed great popularity on the island. People with like minds and business concerns came together in the cooperative spirit to benefit from the economies of scale such as making purchases of raw materials or buying and selling in bulk and promoting the interest of the membership more than trying to profiteer. At least that is the policy statement on paper. In the 70s and 80s a number of cooperatives sprang up.

There were producer co-ops in leather goods, candle products, fishing, poultry and pig production and also oils and spices and even the Dominica Civil Service Union managed a supermarket for its membership. However, it is only in the service sector such as fishing that cooperatives have survived. Today people have become more individualistic and the spirit of community has declined. Cooperatives may be an area that artistes may want to revisit for building cultural facilities such as community theatres etc.

Venture Capital

This may be another option which could be tapped for starting up a new business. Many young people go this route as certain government agencies such as the Dominica Youth Business Trust, the Agricultural and Industrial Development Bank (AID bank), Youth Division and the National Development Foundation (NDFD) are willing to hold your hands and provide soft loans, training and even technical assistance from developing business plans to actual operations. These institutions help with marketing and can be consulted for guidance from experts. These specialised banking institutions can be more flexible and are known to give matching grants from time to time.

Overdraft

An overdraft is a borrowing facility attached to your bank account, set at an agreed limit. It can be drawn on at any time and is most useful for your day-to-day expenses as it can help you to manage your cash flow more flexibly as you only have to make interest payments only on what you have overdrawn.

Intellectual property and re-investments

This is where artistes, authors, designers and musicians can rely to some extent on the commercial exploitation of their intellectual property. Such protection puts a value on ownership for persons involved in the creative industry. In Dominica for instance Gordon Henderson, Ophelia Marie and Fitzroy Williams have been able to survive because they invested in themselves through royalties. In fact, Ophelia attributes her Chez Ophelia business as a reinvestment or being in the main finance through music. Fitzroy and Gordon have told similar stories.

Other

The Sou-sou as it is referred to in Jamaica and some other countries or the Sub as it is called locally has been a source of revenue for many common people. Though it cannot be identified as a loan as there is no pay back, interest or security involved save for the payment of a 'hand' when your turn comes along, it is more can be more aptly described as equity, as it is money received is from long awaited investment. This however, is mainly a short term business agreement among housewives, co-workers who may want cash without the burden of a loan or to undergo the discipline of regular savings for a long vacation or perhaps to buy an expensive household item.

Therefore, it would seem that for a business venture to be viable it would require a substantial investment particularly for the arts. Hence a combination of seed financing and soft loans may just be the more merited approach for financing in the creative industries.

Seed Financing

"The creative industries have emerged to be a key growth sector in the Caribbean economy through its contribution to GDP, exports, and employment as well as its impact on destination and intellectual property branding" Nurse K (2009). This may be true based on a paper published for the CARICOM Secretariat from a symposium held in Antigua in 2009. But without the seed financing for startups, incubation periods, social investment, training and education of artistes in intellectual property and marketing is required. Like all other equity funding, seed funding works on an ownership model wherein the investor offers the company money in exchange for an ownership stake in the business.


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