As we start the New Year, you need to focus what kind of business you can venture in. Perhaps, you need to consider money lending as an alternative, writes Dorothy Nakaweesi.
It’s a New Year. Going through your list of resolution, gets even harder which one to execute first and how to go about it.
As you prepare your mind to work out your resolutions, it is wise to think about those businesses that can bring you money with less hassle.
I mean businesses where you will not have to spend a lot of money and then plough back the profit much later.
As you prepare to start, it would be wise to accumulate your capital by lending part of it to others at an interest.
Business experts say beginning of the year is good timing. This is because during the festive season people have almost emptied their accounts.
Many spend to the extent that they forget about the dry season - January and February.
So, if you were wise enough to keep some money, this is the time to lend to those with need at an interest.
Ideally, moneylending involves giving small loans or supply of goods and services on credit.
These services are readily available but come with a high interest and they are repayable over a short period time.
Unlike banks, building societies or insurance companies, moneylenders do not require serious scrutiny for the applicant to access a loan.
They in most cases just need a tangible collateral.
While private money lenders utilize their own funds for loans, the returns can be greater than other forms of investment.
Newton Buteraba, the House of Wealth chief executive officer, a business advisory provider, says: “Lending to others is profitable if you follow the basics that will help you get back your money.”
Ideally, when starting a lending business you need to follow the five Cs of Credit which include- character, capacity, capital, collateral and conditions.
As a money lender, you must check out every applicant’s credit history.
Usually when someone comes to you as an individual they are too indebted. Your immediate task is to check out their credit history. Well as banks use the credit reference bureau card, as an individual, it is okay to ask the applicant for guarantors or collateral from them.
“Collateral could be in form of their motor vehicle card, land title, motor cycle. This will give you leverage,” Buteraba shares.
However, if you don’t get any of the above prepare to look for them when the payback period expires.
Secondly, when lending it is wise to know your niche and then set a credit limit because every market segment has different characteristics. “If you are targeting teachers you will know that every end of month they will be paying back, unlike a businessman in Kikuubo or market vendors,” Buteraba notes.
After this set a credit limit, if you don’t do this you will run bankrupt. A credit limit will help you to know how much you will lend say to a teacher or businessman.
Getting a license from the money lending authority this will help you to follow up in case in courts of law when tracing those who defaulted.
You must be wondering how you can benefit or rather earn from lending to others. Ideally, besides the collateral the interest asked ranges within 10 per cent to 20 per cent depending on how much the loan is.
For instance, if someone wants Shs10m, this comes with a 20 per cent interest, which means that the applicant will be paying back Shs12m.
In case you have lent out Shs30m in a month to three people and the repayment period is 30-days, it means at the end of the period you will be Shs6m richer.
If this cycle goes on throughout the year, you will be Shs72 million richer.
According to Buteraba, money lending requires a lot of soft skills, which will help you negotiate with people who have failed to pay.
You need a strong heart to handle people you have lent to including your friends.
Money lending also requires the ability to accurately appraise collateral that has been advanced by the loan applicant.
Experts say that it is prudent to check your appraisals with two or more other sources, just to ensure that the client is putting up assets that are comparable to the amount you are lending.