Saturday, January 30, 2016

LOANS, TWO EDGED SWORDS

There is a theory in business, usage of OPM, other people's money. In other words, it is resourcing capital. In other words,it is taking loans. An idea is propagated that it is essential to use OPM to grow in business, which is right also but there are dangerous pitfalls in the way, hence the need of some understanding.

See, loans are two edged swords, they can make you and it can mar you too.

As soon as you take a loan from bank, your repayment to the banks get commenced as Equated monthly Instalment's (EMI), which means that not only interest but a certain part of the capital is out of your hands every month, making your capital lesser forceful.

Superficially it seems that it is something good that not only interest but a certain amount of loan is re-paid every month but business-wise the whole process is not very wise.

You lose processing fee as the loan gets sanctioned, then you lose the 'loan capital' every month, and if the loan does not get allocated appropriately, you lose some part of your own capital every month.

Very dangerous process, can make you pauper, if your plan fails or even get late or get hampered due to some unexpected reason.

Considering, all these risks, I advise you to  start with a very small loan, first use it successfully, then opt for a bigger one, then even bigger than this one, bit by bit.

Still always keep in the mind that even the most successful business may fall down at any time, hence be very much calculative, considerate, moderate.

A single wrong turn taken even by a Marathon champion may become the reason of the one's defeat.

And even if you are going to take Gold loans from companies like Muthoot or Manappuram etc., it is not very good idea, because they will give you only  around 60% of the selling value of your Gold and if you do not pay the interest regularly, they will charge you even more than 3% monthly interest, and if you do not pay them the interest for one year continuously, they will sell your Gold and will not pay you anything if they got more outta sale of your gold what you owe them. What a bad deal! Better sell the Gold at 100 % selling value than pledging at 60% to these sharks.

The extract is, try your best not to take any kinda loans, and if you wanna take, then take the smallest as possible and then by and by, move to the bigger ones, but at some point drop the very concept of taking loans and play with your money only.


Safe and sound!

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