27 Jun How to get a loan when bank rates are suicidal
Knowing how to ask for a loan can be a precious skill at times. If you’re a business owner, small or big one, I’m sure you have had to face that experience a few times.
In my case, I’ve always been a small business owner. And although I left Brazil 3 years ago, I am still a Brazilian resident. Which means I still pay my taxes and conduct most of my financial life in Brazil. That’s where most of my clients pay me and that’s where my relationship with banks is mostly concentrated. Can’t wait to change that, but while it does not change, if my business ever needs more cash flow, I could have to face the interest rates of 3,5 to 15% a month to get a loan. Depending on your business history, if it’s a new business, or if you don’t have assets or cosigners as warranties, you’ll probably have to pay the highest fees.
And if you choose to pay 15% interest rates a month, your business is doomed to fail really quick, no matter how good you are.
But wait. You could ask your relatives or friends for help, right? To escape the suicide of asking Brazilian banks. Well… If you want to preserve a healthy relationship with those relatives or friends, I suggest you do it right. Exactly because they are your relatives and friends, you must be a million times more careful before asking them.
And since this ends up being a solution to many small business owners who like me, are Brazilian and depend on a sky rocket interest rate banking system, and since I have gone through this dilemma with my businesses in the past, I’d like to share with you how I solved that in my entrepreneurial life. It has helped some of my coaching clients when they hit that block and maybe it could help you, too.
First you have to make a list of people who you know have more money in their bank account then they will need for the next few years, at least. Those people need to admire you personally and/or professionally. You need to have had some kind of experience with them where they saw you were hard working and trust worthy. They could be friends, or relatives, or clients you have had in the past and became close friends with, or former bosses.
Then, you calculate how much you need. Add 20% to that number so you have a small margin in case you miscalculated. Then you check your budget and see in how many installments you could pay this person back. I usually ask for a few months to start paying them back and I like to pay it back in 12 installments at the most. The fewer, the better. Specially if it’s the first time you ask, to create trust.
Then you need to check how much their investments are returning. So, here in Brazil, most investments are returning around 1% a month. You want to offer 50% more to make it interesting for them to take the risk of taking that amount out of their investments. It’s almost like they are investing in your business, although you haven’t offered them shares of your business, this could actually be an interesting, more business oriented strategy. But then, you need to evaluate further, if you want to have that person as a business partner. Starting with small loans can actually be a rehearsal for this in the future. So if they are making 1% a month, you should offer them 1,5% a month. Remember that this is still more than half or ten times less of what banks would charge you in Brazil.
So as an example, if you ask for R$ 10.000,00 reais in July. You offer to pay them R$ 150,00 reais of interest per month in August, September and October, to give you 3 months to breathe a little, and then you offer to pay them back in 5 installments of R$ 2150,00 from November to March. If they accept to help you, you must give them the checks and not only offer to make the deposit. This way, you make them feel more comfortable because they won’t have to ask for it, they’ll just deposit those checks in their due dates.
Also, make sure you write them an email first. It’s easier for them to read and think about it before they answer you. Asking this verbally puts too much pressure on them. Not fair. You want to make them comfortable to say yes or no.
Now, if this person says yes, you make sure you pay them on time! If you do, you’ve just created a way to strengthen your relationship and trust with this person. And maybe, in the future, you can actually invite this person for other business deals. Little by little, if you allow them to participate in your business decisions, you are growing a healthy strong relationship.
Your email should be short and objective, something like this:
I’m writing to ask you for a huge favor. The same way I’m comfortable to ask you for this, please feel comfortable to say “yes” or “no”.
I’ve had too many expenses in my business lately with the equipment I bought to increase production and I will start monetizing in a few months, so I need a bit of a cash flow. I have asked in local banks but the interest rates are suicidal.
So I thought of offering you 1,5% interest per month if you could lend me R$ 10.000,00. I’d give you 3 checks of R$ 150,00 for Aug, Sept and October plus 5 checks of R$ 2150,00 due on the 5th day of each month starting in November.
If you need any further details, let me know?