Don’t borrow for financial shortfalls

A customer in a banking hall. Borrowing can be addictive. PHOTO/FILE

The scars of Covid-19 and lockdown are still fresh. Although adapting to the new normal is still hard for many, accepting change is about your attitude.

If you lost a job, dust your shoes and start something that brings in some income. Due to the hard economic times, you may be wondering where you’ll get starting capital.

The most immediate source of finance to many is that micro-credit finance institution or commercial bank.
But before you take that option, personal finance experts advise that you avoid borrowing to cover your financial shortfalls. At least, not now when the economy is still in shambles.

Dr Fred Muhumuza-a renowned economist and lecturer at Makerere University School of Economics says: “Every borrowing must be given a plan of how the money will be repaid. If it is for a business, the borrower must be sure the business area has revived.”

This, according to Muhumuza is to assist the borrower to have an opportunity that will generate income to pay-back.
“If you are borrowing for consumption, then there should be hope for a sure future income to pay back. Otherwise, don’t attempt to borrow,” Muhumuza cautioned.

He further says that if someone must borrow, it should be from the source they know will understand.
Ms Lyndah N. Were, a personal finance expert and co-founder of Ascenity - -management consultancy and training company, in an interview with Prosper Magazine, said: “I do not recommend borrowing right now as the appetite for lenders is quite low and repayment is not guaranteed.”

But she suggests some measures one can use to cover their shortfalls. First, reduce non-essential expenditure.
“Thoroughly assess every expense line and eliminate or reduce. This means you work with a monthly budget and stick to it,” she explains.

It is wise to find more affordable options for essential services preferably monthly packs in case of Internet connectivity or communication.

If the worst comes to the worst, then negotiate with lenders for repayment holidays until such a time that income is relatively stable.

For those in business, negotiate with suppliers or vendors for better repayment terms.
“Business owners should focus on their best-selling, most popular products to increase their cash flows,” Were shares.
You will equally need to be creative and master the new game of digital/online marketing to reach more prospective clients.

She adds that running cost-effective promotions to boost sales and cash flows such as; free delivery, discounts that do not overly impact the bottom line, free products for certain volumes purchased should be applied.

While enhancing technology like online bulk payments to reduce the cost of operations, leverage free online tools like mail chimp to run customer retention programmes and keep them updated.

Ms Were says: “Business cannot afford to lose a single customer now. So leverage on partnerships and collaborations such carpooling to reduce transport costs, movement of goods, and cost-sharing.”

To cover shortfalls, Ms Were encourages people to explore multiple income streams through someone’s interests or passions, educational skills.

“Don’t ignore a need in the community. Being a free-lance distributor for products on commission basis could earn you a commission without falling into debt,” she adds.

Another option where you can earn without falling into debt is helping banks attract new clientele.
“Currently, a number of banks are running promotions where they give you a commission if you refer someone to open an account,” she points out.

Getting out of deficit to avoid incurring debt requires being open-minded to new opportunities to bring in new cash.
If you have multiple loan obligations, you can consolidate them and negotiate for better repayment terms (interest and tenure).
“Make use of Saccos and investment clubs because they offer exceptionally low rates,” Were shares.

-Push your side hustles with aggression on social media.

-Starting a vegetable garden and reduce that cost.
-Tap into your social capital of networks
-Engage WhatsApp groups in worthwhile discussions of making money, growing money or keeping money.