Debt and EMIs: Major hurdle for thousands of aspiring entrepreneurs in India Harsimran Julka & Radhika P Nair, ET Bureau Jan 24, 2014, 03.55PM IST Tags: (At debt’s doorstep is…) In the Mahabharata, Arjunas son Abhimanyu knows how to enter the Chakravyuha—a multi-tier arrangement of troops employed by the opposing Kaurava army— but not how to exit it, leading to his death. The starting up ambitions of thousands of aspiring entrepreneurs in India meet a similar fate after being trapped inside the deadly formation of debt and EMIs. For these young men and women, the sleek automobile that was an absolute must-have or the cosy apartment with a fantastic view suddenly do not seem that appealing anymore—the loans taken to buy these assets are now the biggest obstacles for executing their entrepreneurial plans. Almost a dozen startups are launched in India every week. But for every startup idea that sees the light of day there are at least four more that remain in the dark due to prior financial commitments of the would-be entrepreneurs. Equated monthly instalment obligations are the biggest hurdle for a young professional today to live their dream of entrepreneurship, says Sunil K Goyal, founder and CEO of YourNest Angel Fund. Goyal has personally invested small sums in startups such as mobile engagement platform ZipDial, hospitality software provider Hotelogix and online baby product retailer Hoopos. Almost daily, we come across young executives who cannot venture into starting up or joining a start-up as their EMIs become a threshold for monthly earnings, he says. And the biggest culprit is the home loan. About Rs 6.3 lakh crore worth of real-estate mortgage was taken in India last fiscal, according to credit rating firm ICRA. Most of these loans are taken by salaried professionals— the source of the most exciting startup ideas in the country. The biggest hurdle to my startup dreams was the Rs 40-lakh home loan for an under construction apartment I had taken in 2007, says Neeraj Biyani, cofounder of Hector Beverages. In November 2010, on the day his daughter was born, Biyani decided to take the plunge. I requested my wife, who had wanted to quit her job, to continue working, recalls Biyani, 33. His wife Eeti, working in a NYSE-listed business process outsourcing firm, took charge of even his daily expenses, from her monthly salary of about Rs 1 lakh at the time. We kept all household expenses to a minimum; we stopped eating out or going for movies. In four years, Hector Beverages has gone on to build two national brands—its energy drink Tzinga, and a range of traditional Indian beverages, Paper Boat. Hector now sells about a million packs each month totally. Financial planners advise entrepreneurs to be debt free before launching businesses. Short-term and costly liabilities, such as credit-card debt and car or personal loans, should definitely be retired, says Pankaaj Maalde, head of financial planning at ApnaPaisa, a comparison site for financial products. Under construction houses which may take over two-three years to build, should ideally be surrendered. The Bhargavas also pumped about £150,000 of their savings into the startup, and moved to their parents home in Gurgaon last year. We have even delayed having a child, she says. However, not all entrepreneurs are financially savvy. In 2011, UK-based Explara founder and CEO Santosh Panda, 39, went bankrupt from his humungous credit-card dues. Panda was using his personal credit card to pay the salaries of his five employees and borrowed cash to pay back the debt. We often meet entrepreneurs who believe in their idea so deeply, that they fund their startup with personal loans, gold loans, or credit card loans. This is dangerously risky, says Goyal of YourNest, a chartered financial analyst. Instead such people should get a like-minded investor. Education loan is another big hurdle. An education loan of Rs 12 lakh for my PG at IIM-B has become a nightmare, as my startup is yet to turn break even, says IITian Gandharv Bakshi, 30, founder of Bangalore-based Lumos Design. Lumos Design makes solar fabric laptop bags with an in-built battery that gets charged through sunlight. Bangalore-based Lumos was funded last year with about Rs 30 lakh by angel investors such as Google India managing director Rajan Anandan. The funding helps Bakshi to manage his EMI of Rs 20,000 per month. Financial planners also advise taking the early in life. Starting up is a lot easier when you are single, says Sai Chaitanya Gaddam, 33, who started Kernel Insights last year.
Posted on: Sun, 26 Jan 2014 11:46:53 +0000