m-commerce(1)

Tefo’s Confessions: Loans are Bad and Will Cripple Startups in Developing Countries(!)

I have done research about starting up a business and it has been registered and started. That part of starting up has never been an issue. The major issue, for all business owners is start up capital. Securing the right amount of money to get the business started; buy resources, get labor and most importantly, creating awareness about the business.

Start up marketing is usually the 2nd most expensive entity of the start-up budget after location/building and or equipment. There have been several organizations in place to help assist the small business 1st time owners secure the right funding for their businesses; both private and government aided. Instead of answering the cries of these business owners it has made them worse.

Start-up loans have become more of a nightmare for small businesses because of the low lending and high interest rate charged on the loans. Instead of helping, they cripple them.

A lot of people advise business owners to start small and do something that will help them raise the capital they need for their business. As easy as this sounds, starting small means implementing yet another business idea that will also need funding; regardless of how small-a-capital is needed. And its also time and energy consuming.

Starting our business we decided to take the ‘start-small’ route and it ends up being as huge as the main idea was; and often one wonders if it really was worth it; and sadly enough, we ended up at the very same spot we started off at. So starting small with an alternative idea was just another term for ‘start moving in circles until you figure out that there’s no other way to go about it.’ Just run through the brickwall?

Most people really have worked hard on that one major business idea and having to come up with yet another one becomes an issue; hence the reason most potential entrepreneurs quit and settle for a 9-5.

Most new businesses fail because they spend the good part of their first years working to repay the loan. They work so hard to inject their revenue into paying the loan they don’t have the chance to even expand the business. The sad part is, even with the business not doing so well, they still have to ‘somehow’ find the money each month to pay back the loan or face the possibility of losing their business.

They work until they sweat blood and never once get to enjoy their hard work’s fruits. Sadly enough, each year, the lending amount drops even lower and the interest rates increase rapidly. And with no other option, entrepreneurs sign up for this suicide with the hope of making it out alive.

The business dies a multiple deaths before it can finally resurrect and be the best business it was meant to be. Wouldn’t it be easier and advisable for the businesses to be allowed at least 5-10 years to grow the business and whenever they feel they are ready to pay back the loan they do so? Hell, they could even pay it all back at once.  It’s as if though they miss the point that these businesses provide employment, add product diversity into the markets and pay tax hence contributing to the economy of the nation. Or are these even considered.

I don’t know much about business financing and accounting; but this is simple notion. I lend you RM10 and expect you to pay it back with a 100% interest rate starting the following week. So you only have a week to do what you’ve got to do to make it work that needed to be done in a period of 1 month?

How many new small businesses have made it past the 5th year mark? How many have had to sell off the business? How many had to close and reopen? How many had to find a larger organization to buy controlling shares into it just to afford to pay back these loans? It cripples the efforts made by entrepreneurs to survive independently in largely populated markets where they compete with giant companies and multinational franchises.

They could stand a chance if afforded one. But very few manage to make it and are persistent enough to pull through the loan and stand independent. That means after 5 years of running the business, they officially re-launch and start the business afresh? 5 years too late, maybe? The amount of progress and growth that could have been made in 5 years is what makes most lose hope and quit. It becomes a huge challenge to successfully run the business when your biggest frenemy is your very own bank and/or government financial aiding institutions.