Analysis: ELEMIYA PHIRI
PEOPLE from all walks of life regardless of status, race, level of education attained, gender and age, among other things venture into business as an alternative source of income.
In a nutshell, the working class and the unemployed can start business to earn income by realising profit from selling of goods and services. Profit making is the ultimate objective of every entrepreneur and this profit arises from the business transaction.
From the accounting point of view, the business transaction is defined as the exchange of goods and services for money. This trans-action can either be cash or credit. Cash transaction as the name implies is one that involves immediate payment of cash once the client parts away with goods and services. On the other hand, the credit transaction is one where payment for gods and services is deferred meaning that the payment is made at a later date.
Business is no longer the preserve for old people let alone the unemployed. This is because anyone can venture into business provided someone has the passion for it.
To have the desire to start business is one thing and to grow that business is another. It is undeniable fact that for one to commence business requires capital. Even growing the already established enterprise, there is need for funds to be injected into the business.
Once the business grows, it is possible for the entrepreneur to sustain it both in the short term and the long term. This is the dream of every entrepreneur who strives to expand or grow the business.
The old people and the young ones alike might have the eagerness to start or grow their business but, they are in most cases con-strained by financial resources. It is therefore imperative for these entrepreneurs to source for financial resources.
Entrepreneurs can source financial resources by borrowing. They can borrow money from people and financial institutions notably the commercial banks and the microfinance institutions.
We have commercial banks such as AB, FNB, Atlas Mara, Zambia National Commercial (ZANACO), Investrust, INDO, Access and Eco to mention but a few. On the other hand, we have microfinance institutions such as FINCA Zambia Limited, Entrepreneurial Finance Centre (EFC), Bayport Financial Services Limited and Vision Fund Zambia Limited, among others.
However, there are conditions that the borrower must meet before the financial institutions lend out money. These institutions re-quire the potential borrower to provide collateral which can be an asset. These include house, motor vehicle, farm, residential plot and household goods. The applicant for the loan would also be required to provide the guarantor. The guarantor is simply someone who obtained a loan from the financial institution you intend to borrow money. On the other hand, the guarantor can be an employer in the case of someone who is in formal employment.
The cardinal issues worth noting before applying for a loan are: the pledged collateral must have a higher market value than the amount applied for, the duration for the loan, your capacity to pay back the loan and the interest charged on the loan.
After the assessment has been done by the lending financial institution and when the applicant meets all the benchmarks or rather conditions, the loan is disbursed to the client.
Financial discipline is of the essence when the entrepreneur obtains the loan. This is because some entrepreneurs misuse the loan by not utilising it for the intended purpose; to start the business or grow it from the current level.
I have witnessed some entrepreneurs who resort to immediate personal gratification. They do this by spending the big chunk of the loan on designer clothes, buying one of the latest cars on the market, flying out of the country for personal trips, buying latest smart phones, laptops and patronising hotels and lodges around town. Some male entrepreneurs can even marry other women despite the fact that they are already married.
However, some of the entrepreneurs who lack financial discipline invest very little amount of the loan into business. When it comes to loan repayment, they default and end up losing whatever they have pledged as collateral. This is not good practice and it should be avoided at all cost. Worse yet, these entrepreneurs who find it difficult to pay back the loan, they may resort to borrow again to off-set the current loan.
What is vital is that when the entrepreneur obtains the loan, the money must be invested in the business to generate more revenue and ultimately grow the business. In this way, the business will be able to pay back the loan within the stipulated period.
All things being equal, the entrepreneurs should borrow from financial institutions for a good purpose; to grow the business. This can be achieved by delaying personal gratification and foregoing extravagant lifestyle.
The author is a Lusaka-based accountant and business executive.
Analysis: ELEMIYA PHIRI