Thursday, February 19, 2009

Where can I get capital for my business?

Start-up businesses can get capital by seeking loans from formal lending institutions like banks/ rural banks, cooperatives or Micro-Finance Institutions (MFI’s).

However, some budding entrepreneurs don’t access conventional financing because of fear of documentary requirements, lack of collateral, or inexperience. They end up digging into their savings, maxing out their credit cards or mortgaging their homes. In fact, home-equity loans are one of the most popular borrowing routes.

But there are other ways of getting capital funding. One is borrowing against your insurance policy -- provided it is a cash-value life insurance. It cuts the value of your insurance benefit, but if you’re relatively young, you’d still have a long time to pay it back. Interest rates typically run in single digits.

If you’re an employee, you can also access other sources of low-cost cash through your state pension funds – SSS or GSIS salary loans or a PAG-IBIG Fund Multi-Purpose Loan . They usually let you borrow at the prime rate, but PAG-IBIG’s interest is relatively the lowest. The Department of Trade and Industry has come up with a list of financing options for entrepreneurs.

Pawnshops are also viable sources of funding, and are very accessible. But starting a business is a serious venture and it’s hard to start one using a high-interest loan as capital.

Another popular non-formal way to get funding, but which is discouraged, is through five-six loans. This means for every five pesos you borrow, you pay back six pesos after just a few days. Effectively, it is said to be more than 1000% interest rate on an annual basis. So ask yourself if you want to borrow at that rate when you start a business.

Lastly, you could always try to borrow from your family, friends or relatives, but use this only as your last resort, since there is risk of starting a family feud. Doing business with family is still doing business, so remember to put everything on paper to avoid unnecessary complications.

Keep in mind that money is not the only capital that you have. Your business skills – your capacity for marketing, people and social skills, technical expertise, even your connections – can be used as capital for your business. Sometimes, by being resourceful, you lessen the need for loans and other expenses.

Aspiring entrepreneurs should start small, but dream big. Starting small minimizes the financial exposure and the risks involved in business start-ups. In fact, many successful entrepreneurs nowadays have their inspiring stories to share as most of them started small, either from one small store or peddling operations. By learning from their mistakes and keeping true to their vision, they were able to overcome obstacles and grow their business. Because of their determination, creativity, forecasting skills, and vigilance in reinvesting their profit into the business, these icons and role models have shown that it is possible to become successful.


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