Why They Do Not Lend Money To I-Cafés
I attended “eNabling the eNtrepreneurs”: An SMB ICT Forum last July 2, 2010 at Crowne Plaza Galleria Manila and it was there that I was able to confirm that financing institutions are not granting loans to ordinary i-café owners. The forum was organized by Intel Technology Philippines and attended by owners of micro, small and medium-sized businesses with some thirty (30) i-café owners among them. The financing and/or lending institutions made their presentations in the afternoon about the various loan products that they offer to entrepreneurs. If people want to know more about discharge student loans, they can check it out here!
In the open forum, I stood up and ask about the standing or rating of i-café owners in their loan portfolios. I inquire if they are granting loans with an iva to i-café owners who need them either to start and/or expand existing business. I am sorry to report here that the reply was negative. They do not anymore extend loan for i-cafés because previous borrowers who are engaged in the business were not able to repay their debts. However, the respondent from the financing institution said they may consider lending money for an i-café expansion provided the owner can provide verified data showing his capability to repay the loan from the proceeds of his existing business.
Why do financing institutions do not lend money to i-cafés anymore? Aside from the failure to repay that the lenders experienced in the old loans that they granted to i-café owners, we can conclude that the very fast obsolescence of computer equipment is another reason why it is practically impossible to secure a business loan for an i-café. I want to add the non-transferability of software ownership as another reason. Have a look at the mortgage loans in Syracuse that might help with your finances.
Is there something that i-café owners can do to increase the credit rating of i-café business with the financing institutions? Yes, there is. Those who are really making money in the business must file accurate returns and pay the correct taxes. This is the only way that the financing institutions can determine if it is worth lending money to deserving i-café owners.
Yes sir, but indirectly. Ummm in fact it is very indirect. Why are Internet Cafes very unattractive prospects to financial institutions. Because in a manner of speaking icafes dont have assets per se. What they have are in fact liabilities.
Please do correct me if I am wrong, but in accounting, electronic equipment is classified under “consumables”. Their value degrades over time. That’s why in assessing the value of an Internet Cafe, it will only go down. It can’t go up.
Even if you bought new equipment, 1 year pa lang severely depreciated na ang value.
My admittedly far fetched indirect solution: Put your Internet Cafe in your home and use the real property as collateral. Long shot but thats the only way for you to secure a loan. iCafes is a dying business model because of cheap Korean desktops, cheap netbooks and cheap wireless internet access
There would always be places where Internet Cafe demand would still be strong. But the volume of the demand for them will steadily decrease.
Hey, Dan, thanks for the visit and the comment. You are very correct! The i-café equipment become liabilities instead of being assets the moment they are put into use. The other burden is the software in a legally operating i-café. It costs about 30 to 50% of investment on the equipment but an i-café owner cannot resell it. The software is only for him to use. It has no value when he sells his obsolete units.
But what I am saying is, an i-café owner who really earns from his operation must declare his accurate income and pay the correct amount of taxes. In so doing, the financial institutions would see that there is income in his operation of an i-café so the possibility that they would lend him money for his expansions will be there. That will, of course, depend on how much money from his current operation could be used to defray the loan amortization.
As it is now, many i-café owners won’t even venture registering with BIR. There are those already registered but the question is, do they declare their real income. What will be the basis of the financing institution in determining the profitability of their operations if they are not declaring their correct income in the first place.
You’re welcome. I always enjoy a good conversation on a Sunday.
I agree with declaring taxes to the BIR – this would show the earning capacity of the business. Which is 1 of the requirements of banks.
But I think most small to medium scale icafe owners would defer on that and instead approach less formal lending channels – I do know several people who have deferred on this and instead went to Indian Lending Institutions. I. L. I. (hehehehe)
Well, life is like that, we have to continuously adapt or else we will be dinosaurs.
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