Getting another String in the Bow will have your Business Dream a Step Closer

Who hasn’t thought of becoming a boss? Rather than working nine-to-five, day in and day out, virtually every employee has dreamed of becoming his or her own boss. The cold hard truth is that most people will stop at the rumination stage. Raymond, a designer of an architectural firm who has been with the company for more than 10 years, is thinking seriously of getting out of the "bottom of the food chain" and open his own company. Like many others, he does not have a huge risk appetite. Fearing his hard-earned savings may not be sufficient to protect him from market anomalies and the notorious ‘cash flow problem’, Raymond’s first step toward his business dream is thus yet to be taken. This once again shows that affluence is of paramount importance in entrepreneurship both practically and psychologically.

Unbeknownst to Raymond, there are two practical sources of funds in addition to saving up his humble income.

1st Source: Seed Funding Programs

The Hong Kong government ^[1] alone has launched 46 seed funding programs, ranging from technology, logistics to creative industries. The Cyberport Incubation Program ^[2], the HKSTP IDEATION Program ^[3], and the Social Innovation and Entrepreneurship Development Fund (SIE Fund) ^[4] are the generally sought-after ones. The remainder of the list is made possible by different public and private organizations, including but not limited to the Hong Kong Federation of Youth Groups ^[5], and Alibaba ^[6]. For all the entrepreneurs to be, do spend time studying each of these programs and devise an all-rounded business proposal that is comprehensive enough for a successful application. Also, have yourselves mentally prepared for multiple applications, as seed funds are known to be some fierce battlegrounds. Survival of the fittest is a hidden rule there.

2^nd Source: Low-Interest Loans

In comparison to government or public/private seed funds, loans from banks and finance companies may be less stringent, and thus a higher chance to obtain. But there’s a catch. The prerequisite for the low-interest loans is a good credit score! Credit score often plays a predominant role when a finance company is approving loan applications. Any application with a questionable credit score is subject to a higher annual percentage rate (APR) or a lower credit limit. Applicants with a bad credit history may even be denied entirely.

In other words, the better your credit score is, the higher the chance your loan will be approved at a lower APR. A lower-cost fund means the world to aspiring entrepreneurs when fledgling companies are still on their way to steady incomes. TransUnion’s figures show that, as of May 2022 ^[7], the bank median interest rate approved was 4.4% for borrowers with an A for credit rating; 5.3 and 6.6% for B-grader and C-grader respectively. The gap between each class widens as we go down: 8.4% for D, 9.6% for E, 11.5% for F, 13.8% for G, and 15.4% for H.

Unlike stock prices, a credit score does not skyrocket overnight, but takes at least three to six months, or more of good credit behavior to improve. If you do not have a dazzling credit score to begin with, and would like to start a business with fewer financial hurdles, you should regularly keep track of your credit report as a part of a solid foundation for your business plan.

In addition, most financial institutes will ask the applicants to authorize their access to their credit reports as a part of the standard approval procedure. Every such authorization leaves an enquiry record on your credit report and may negatively affect your credit score. The same consideration; however, does not extend to personal access, that is, no matter how many times you check your credit score, it will not be affected! Therefore, it is recommended that you have a glimpse of your credit report before applying for any loans. That will better equip you with the knowledge to decide whether to apply now or wait until the credit score is improved.

^{〔1〕Government Funding Schemes at a Glance}

^{〔2〕Cyberport Entrepreneurs}

^{〔3〕HKSTP Ideation Programme}

^{〔4〕The Social Innovation and Entrepreneurship Development Fund (SIE Fund)}

^{〔5〕Youth Business Hong Kong (YBHK)}

^{〔6〕Alibaba Entrepreneurs Fund}

^{〔7〕TransUnion Data from May 2022}

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