Today, bank loans, one of the first options presented by the need to obtain financing, are difficult to obtain and where to get them, interest rates are high and represent the risk of raising the cost without notice.
The outlook is uncertain, but the entrepreneurial spirit always finds solutions. And the answer to this problem is called private capital. Internationally, private capital has become the leading provider of financing and the main engine for the generation and enterprise development.
According to a study by the Venture Capital Institute, U.S. economic research firm for the past 15 years, the private equity market has been the fastest growing corporate finance in the United States.
This means that companies, before approaching the public sector to seek credit or equity placements to acquire financing, target other companies, investors or strategic partners, to find the capital to allow them to grow and consolidate.
When an entrepreneur comes up with a business and then find a loan to grow your business, get financing but also incurs a debt. While this has been a traditional, today’s entrepreneurs disqualifying. “Recommend not to start a company with loans, because if the business comes in liabilities (debts), born sick,” said Manuel Somoza, man with a long tradition in the financial world and current CEO of Apollo, an independent investment company.
This view is supported by other entrepreneurs. “The last thing I would do is go to the bank to request financial support, and then work only for them to pay,” says Jorge Varela, director of Grupo Scanda, technology solutions company.
If it is not appropriate to approach the banks, what other sources of funding are available? Of course, the so-called family capital, including the money they can give relatives, friends or acquaintances. But here is where you set another strategy to obtain financing through capital formation and not through acquisition of debt: the association.
This can be done with individuals or companies. They did not ask for money to open a business, but the invitation to participate as partners in their project. That is, they will not just wait for you to pay the money they invested, but the business will seek to fruition and they report huge profits. They do not work and its creditors. They are his fellow entrepreneurs, this is how you must sell the idea.
However, in its investment partners will pose several options for participation, without forgetting that you are the generator of the idea that will translate into business for everyone.
“When I conceived the autoboutique, knew who owned the intellectual capital to get them started, because I’m an engineer in auto mechanics and it was ten years of working in the middle. I had made of specialized tools in this line and had found that in Cuernavaca was a need for this type of business. All I needed was money to rent a local company and ride, “narrates Ulises Lozano, owner of Car Shop partner. Once developed the business plan, presented it to a couple of friends and his brother, to see if they were interested to participate as investors.
“They agreed to raise the initial sum was $ 250,000 pesos (about U.S. $ 25,000). Divide the investment among the four. I could not manage to gather my part, but consider that my business knowledge and tools they already had could count as capital. So, we each have 25 percent of the business, “explains Lozano. Currently, Car Shop has three years of operation in Cuernavaca, Morelos.
In the middle of last July a national newspaper reflected in its pages salmon in which information was said an order made by the Minister of Public Works in order to undertake an analysis of 300,000 cases families should the bank is worth more than your home because credit was granted over 80% of appraised value. The news kept saying that there was evidence that a high percentage of the bank granted loans that would not have been able to return even with economic prosperity. In short, we’ll see if the study is conducted. I suspect not, but the news was used to introduce a series of reflections.
Another newspaper, on the same dates, reported on the draft Administration of the Community of Madrid in the sense of power to impose sanctions on banks that did not report it to their mortgage customers. Someone in that community had posed as a kind of mystery shopper seeking to formalize a mortgage in any of the branches visited brochures were decent. Bad business.
It seemed, therefore, obvious that we were in situations in which the bank had not acted properly. I’m not saying that sin is not repentance go because many banks are finding themselves with a fantastic housing stock is now worth far less than can be reflected in the books and it is possible, also lower than the value justify a particular mortgage.
Almost everyone has heard of any situation, of the many comments about the mortgages to immigrants with low and unstable income, etc.. but the fact is that there is no accurate information, public and quantified in this respect. And if there is I do not know completely.
From my perspective as a strong supporter of capitalism and free markets, I have always considered that it was based not only on the law of supply and demand, but also the freedom and confidence. In this regard let me quote here from Francois Michelin who in an excellent book (Enterprise and responsibility), which I highly recommend reading, said that capitalism rests on trust and therefore invited to weigh well our actions before acting. Conceived as a system that focuses on the man and his ability to progress.
In short, my idea is that the market economy allows, among other things, that agents offering goods and / services and others who call consumers acquired in a free environment where the parameters of price, quality, good work and trust are reasonable for both. In short, who did not make it right eventually be expelled from the market or forced to act otherwise, because it is efficient and that efficiency consider including ethics, ie, do not cheat, he did not act intentionally.
That said it sounds good, the feeling is that things do not always work well and generally between consumer and seller becomes too unbalanced situations.
Joseph Stiglitz won a Nobel prize in economics for his theory about the influence of information in commercial transactions and generated an expression that I feel very fortunate, “information asymmetry”. Thus was referring to the disparity of information available to businesses and consumers. Stiglitz points out as one of the biggest problems in the market, because the knowledge of the information and data allows consumers to make smarter decisions, while the absence of such information or ignorance of it is contrary to market efficiency . When sellers know something that consumers are unaware, the asymmetry of information impedes market to develop more fair and effective.
So what have been banks that have recently acted correctly in granting mortgages? Does this action has generated significant losses in many families? What if that information is made public? Would it be that hundreds of thousands of customers determined / s banks could decide to change your financial institution? Would that be enough reason to switch banks or actuaries to the scheme “as I do not have happened”? Would it be this tremendous damage to the entity even put it on the verge of a serious crisis? Would not that right because the market corrects the poor performance by the expulsion of the same of those who do not act correctly? Could you suppose to know that information necessary resignation of the managers of the entity?
There are unanswered questions. We can imagine, sense, pontificating and others. But we have essentially assured that this has happened. And so, as long as we do not have that information and we only have guesses are in a situation of imbalance as consumers and, hypothetically, allowing a player remains in the market when it would be reasonable to be expelled or at least severely punished for that behavior. In my view, this lack of information makes it a disservice to the market economy. This lack of information is what makes many shout after the market down and down with the bank. Interestingly, it is the market itself or those who must defend those who create and nurture their best enemies.
You said earlier that was not very hopeful about the advertising of that study and I have not much confidence in the possible resignation of a manager. This is a country where there is a Supreme Court ruling that has doomed a major CEO to eight months imprisonment, fines and disqualification specially for the exercise of any job related to banking and the character continues as if nothing and also has the support of his illustrious chief.
Slope would try to round up this post, another issue related also to the availability of information and that relating to the power that the consumer may have against the acts of corporations. But it will be the subject of another discussion at another time.