Robert Kiyosaki in his book, “Rich Dad Poor Dad”, advises “If you find yourself in a hole, then stop digging.” His reason, if you keep on digging then you will keep on sinking. You may be thinking, “How does this relate to having a debt?”
I’ll use an example here, Stacey a Kenyan woman desires to start a restaurant business, so what does Stacey do? What everyone else does of course. She takes out a loan of Ksh. 100,000 from a Bank where she has a savings account. Stacey thinks it’s a great idea plus, the financial advisor at the bank agrees with her fully.
So Stacey receives 500,000 and she’s positive that the business will be successful. She’s even more happy because the amount is not taxed(as loans are not taxed). With the money she pays rent, and buys food supplies, restaurant equipment and furniture.
But here’s where the hole keeps on getting deeper, in the first few months the restaurant fails to attract any customers. But she attracts something else, bills start piling up. After all the rent is due, she has staff to pay and with that too her loan is almost due. Stacy is now forced to take another loan from another bank, hence another loan to pay. Stacy’s hole keeps on getting bigger and she keeps on sinking.
Should you avoid taking out loans? Absolutely not even the richest men on earth have debts. You can totally take out your loan so long as you have a perfect repayment strategy. If Stacy had a 9-5 job with a decent salary at the end of the month, she would service her loan while the business still found its footing.
This fictional story is trying to teach all of us a lesson. Taking out a loan without a clear repayment plan might not be the best idea after all. Keep in mind that loans offered by banks, Sacco and mobile lending apps offer very high interest rates.
Don’t listen to the financial advisor at the bank telling you to take out a loan, after all that’s what they get paid for. If not that, then there are also inflation rates or high competition. According to the Central Bank of Kenya (CBK) research conducted in 2023, 60.7 percent of the small businesses and enterprises fail to pay their loans.
How is a person supposed to come up with so much capital? First of all, you may not need a large sum of money to start a business. Since people say you should take risks, that does not apply here. Business teaches us to learn to take minimal risks. Even Eric Ries in his book, ‘The Lean Startup’ says that “the smartest businesses start small, test their ideas cheaply and only scale once they know the idea works.
“That way you’ll learn how to run the business, challenges encountered and if you fail then there won’t be much loss. And if it succeeds then the business will grow with time.
