Belize~ Investments, LLC & Personal Guarantees

The views expressed in this article are those of the writer and not necessarily those of Breaking Belize News.

This article was written by Richard Harrison, Belizean investor in production and services businesses in Belize. He holds a Master’s in Business Administration degree from Lancaster University.

By Richard Harrison:  Belize needs more investment, savings and consumption.

The basic formula for calculating GDP is: y = c + i + e + g, where y = GDP, c = consumer spending, i = industry investment, e = excess of exports over imports and g = government spending.

Countries develop only as rapidly as these components of the economy are encouraged, facilitated and realized.

Investment is the principal of these components, because it is what creates goods and services and generates wealth, once profitable.

However, investments are impossible without savings….and worthless if the goods and services are not “consumed”.

Investments, savings and consumption can be both domestic and foreign….and both needs to be encouraged, facilitated and realized.

Domestic investments are as important as foreign investments….probably even more so….because the wealth generated by domestic investments mostly stay in the country….and is turned over many times, to grow and multiply investments, savings and consumption within the country. While, foreign investment profits are taken out of the country by the people who make dividends on those investments.

The growth of tourism inside a country creates an artificial “domestic consumption”, since a major portion of what is consumed locally is not consumed by the citizens and residents of the country. It does not reflect the true capacity of the domestic market to consume goods and services….the disposable incomes of the citizens and residents is artificially “amplified”. But…as with electronic amplification, an equilizer and speakers out of balance will only create “noise”….and not fine quality “music”.

Belize laws and policies currently allow COMMERCIAL BANKS (which are all foreign owned and controlled) to demand personal guarantees from its borrowers….almost in every instance….even though the country recognizes and offers the investors the right to operate LIMITED LIABILITY COMPANIES.

A Limited Liability Company (LLC) is a hybrid business entity having certain characteristics of both a corporation and a partnership or sole proprietorship (depending on how many owners there are). An LLC, although a business entity, is a type of unincorporated association and is not a corporation. The primary characteristic an LLC shares with a corporation is limited liability, and the primary characteristic it shares with a partnership is the availability of pass-through income taxation. It is often more flexible than a corporation, and it is well-suited for companies with a single owner.

An investor pays to form a Limited Liability Company as a vehicle for a business unit…and may form various LLC’s if the entrepreneur has several businesses that operate separately. As long as the bank has the level of unincumbered collateral within the LLC to back the investment (banks will normally lend up to 70% of the Forced Sale Value of a collateral asset)…there should be no need to force the investor to sign a personal guarantee…which by so doing puts any and all of the investors assets, including his home and personal effects at risk. Taking personal guarantees on every investment is the laziest, most destructive way of managing risk…it deters entrepreneurship.

If personal guarantee’s are required in most instances to be able to make loans for investments…..many potential investments are averted…..because not any entrepreneur is willing to risk their own family shelter….in order to make an investment.

Belize laws and policies that seek to encourage, facilitate and realize investments need to be reviewed and revised urgently….so that the LLC works in the way that it is supposed to.

There are many investors in Belize….who may have invested in a business formula that was viable 10-30 years ago….and whose viability might now be challenged due to changes in market conditions, and government laws and policies over the years. Many of those investors are sitting around doing nothing….because the financial system in Belize blocks them from doing business…and is holding them to the commitments made at the time of financing…..behaving as if they don’t know the market, legal and policy changes that have taken place…and they have these people by their testicles, having signed PERSONAL GUARANTEE’S.

These investors may have other assets to start other viable businesses…..with a business formula that is relevant to today….but they are sitting around idle….because then they risk losing EVERYTHING if they cannot, in the end, resolve the challenges that they are facing with any of the particular investments.

Belize does not have too many entrepreneurs…so each one is vitally important..and none should be blocked permanently from the investment field…because of failure in one project or another…and all of us should see the mistakes of entrepreneurs as learning tools…not as justification for their crucifixion.

Belizeans need to DEMAND urgent changes in our banking and investment laws and policies…..to free up entrepreneurs ability to create new and viable investments using the LLC without the risk of PERSONAL GUARANTEE’s and potential loss of their very shelter……so that, if they fail in one particular investment…that should not be the end of the world, as is currently the case…they should be able to move on with their lives……where possible to revive their challenged businesses…..and to create new business formulas that would be viable given the markets, laws and policies of today.