Worldwide, the mystic of banking must be exposed. Banks are in
business to earn profits, much like any other entity, in the service sector. People,
initial contributors or shareholders, pool their savings, develop financial
products, fees and charges, and sell mainly loans at a competitive interest rate.
Such financial products are designed to be fully or over secured, by fixed
marketable Assets, easily cashed in to liquidate outstanding debts. Hence
Entrepreneurs must firstly learn, such banks are not interested in an idea or startup
business and more so, a business must never be started with loans, startups
require risks capital, and banks are not where equity investments are made.
Opening a personal account, with its fees and charges, is seen by retail
banks as to deposit wages and withdraw cash to pay expenses. This account must never
be owing, in fact the bank would prefer to attach a credit card to it, to
charge higher fees and interest rates. These types of financial products are
best suited for long-term salary employees, that with close off their facilities
the moment job loss occurs, to stop all charges. This is not suited to
entrepreneurial activities, as such deposits and withdrawals from a variety of
customers, do not follow a fixed schedule.
A commercial account, with an Overdraft, fees and charges, is better
suited to an entrepreneur, with a track record of sales to present to the loans
officer. This account will receive the daily sales revenue, pay the operations
expenses and restock inventory levels, but of utmost importance, the overdraft
must be reduced once a month. For it is cash flow that interest the bank, any
sign of weakening sales or mismanagement of cash, the bank will close the
account and proceed with recovery. The Entrepreneur must recognize and cater
for lulls in the cash flow and mitigating it by, at the very least, paying the bank
interest, charges and fees.
Personal loans are banks’ mainstay, as here is where the highest
revenue is generally earned, not from government or large corporation
borrowings. Wage or salary employees would benefit from the use and enjoyment
of assets while paying a fixed small amount toward reducing loan principal and
interest. While an Entrepreneur can and should be treated as a full-time
employee, such personal loans and personal savings account, must be kept
independent from the business operations. The operation, however, may from time
to time be in need of cash injections, and once short-term and justified, may call
upon the entrepreneur.
Debt financing, needed by an existing operation to expand and grow,
should be sourced, over the short to medium term from special purpose lenders or
merchant banks. In much the same fashion, Bonds can be issued and sold becoming
trade-able over the long-term to protect future revenues. While, Shares issued,
held and sold to raise initial operating cash, increases or decreases in value
as profits are recorded and can further gain value as market trade-able shares.
Noting that, Equity Funding is Not provided by Retail and Commercial banks but by
wealthy clients of investment bankers or underwriters seeking superior returns.
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.
