A very good way to finance your business in the initial stage is through borrowing. If your credibility is no good with banks as you are just about to start your business, the other alternative is through friends and close relatives. Borrowing from friends and relatives is not a fun thing to do, as it means creating not only a debt of money, but a debt of goodwill as well. Even if you have finished of paying the loan and owe them nothing in monetary form, you will forever owe them that goodwill and that is not something easily repayable. So you have to be real careful who you borrow from.
Whatever it is or whoever it is that you borrow for your start up, never, never get your loan from a loan shark. Loan sharks these days are a sophisticated lot, giving out leaflets and name cards to advertise their “business”. Don’t be fooled by their claims if “Low Interest Rates” The fact that they can advertise and give out loans at 3 percent, is not a trick. They do only charge 3 percent, only in their case, the 3 percent is charged monthly and not yearly. In most cases, they will set a minimum limit for you to qualify for the 3 percent. Some only offers you this “low Rate” if the loan is more than 300,000.
For those who wants a smaller loan, they have other “special offers” but it will carry an exorhibant rate, like 8 to 10 percent. Which means if you take a loan of 10,000 you might well be paying a monthly interest of 1,000 per month. If you defualt for one month, then the 1000 is added into your principle and you will have to pay interest for 11,000 for the next month. If you default again, you principle will balloon to 12,100 for the third month. It keeps growing and you should have read in the the papers what happens to those who cannot afford to pay.
So you see it is not advisable to borrow from loan sharks to start a business. The interest alone is going to kill you. On the other hand, if the loan is from relatives or close friends, there is always a an open option. Just make sure you pay back.
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