Financial Institutions, in the aftermath of the global financial crisis and the current lack of consumer confidence due to uncertainty both on the job front and as to the direction of interest rates, are finding it difficult to lend. So where would an entrepreneur, a community business or a manufacturer access credit to win market share and expand to create more jobs, certainly not traditional commercial banks. A deposit taking, consumer lending bank is not in the risk taking business. Net Worth, for loan security or guarantees, and reducing the provision for bad debts on their balance sheet is more important than analyzing any business ideas.A sound business idea or opportunity must firstly have a viable market demand – customers willing and able to buy the product, secondly a burning desire for success and confidence in the business plan must be seen in the owners and of course, an exit strategy to minimize financial losses. It is the exit strategy the traditional commercial banks favor – the ability to repay the loans and meet other obligations and the growing value of the financial securities held, that can be used to liquidate the loans. However, it is the desire and confident that maybe enough to win over some Family and Friends with net worth to guarantee loans.
Paying customers and their loyalty is the most difficult thing to currently sell to lenders. That revenue line can only be justified, after due diligence, by signed iron clad contracts with high net-worth customers, multinational business or Governments. Business plans with smaller income levels and under one hundred employees will be better advised to join Credit Unions – funded largely by its members or apply to a micro financing initiative – funded by taxpayers or the private sector, whose rules and regulations allow them to be much more accommodating.
If the business plan cannot find the necessary equity financing from its owners or friends and family or allocate enough shares in the credit union, one can turn to Venture Capital or Angel Financing, people that take risk on the next big thing, inventions or innovations. Another approach would be to sell yourself and your idea, before it is stolen, to similar business operation. Yes, you may become just another employee, or you can view it as a merger of ideas and resources, or an acquisition of your ideas but the reality is your ideas will be implemented.
Governments are still solely responsible for the economic environment; job creation, consumer confidence, etc. But clearly, stimulus money was used to reinforce financial institutions, which had made risky turned bad investments, and not to lend to business to create jobs or strengthen consumer confidence. Now, Governments want to lend the stimulus taxpayers’ money directly to business, without a plan to address consumer confidence, business will access the funds but will not spend it, just as the financial institutions did. Government loan guarantees for business development will tackle job creation and win back consumer confidence.
Rationale
T.A.J & Associates Company Limited uses this occasion to comment on topics that have been covered, both academically and by the mainstream media, to add its opinion and point out investment opportunity, not to invoke any social action.
