At one point or the other in a business’s life cycle, there may be need for external finance. The need for this type of finance could be for expansion or related issue. A business like catfish farming is not exempted from this kind of need. A lot of able-bodied youths with much interest in catfish farming are financially hindered from pursuing their dream business. This has prompted me to write on sources of finance for catfish farming. I was not really surprised with the popularity of that article. Many people want to take advantage of the available opportunity, but please bear in mind that no loan is absolutely free. It usually comes with a price tag.
In order not to mislead some interested young mind into taking wrong loan, I felt the need to write this article. Not all loans are appropriate for catfish farming business. The fact that certain types of loan works for some businesses does not mean you should apply for the same type of loan. This is because taking some loans for agricultural purposes is like entering into modern slavery. If care is not taken, your returns on catfish farming investment will not be enough to service the interest on the loan taken.
Loan is not the best kind of finance to start a fish farming business. However, we cannot completely rule out loan due to the shortage of financial resource. For the benefit and best interest of those that wish to take loan for catfish farming business, I have compiled a number of factors that you must consider before you take a loan for catfish farming. An ideal loan must pass some test as suggested in this article. Do not just apply for a loan; cross check the terms and conditions of such loan against the under listed test-factors.
- Repayment Plan: Flexibility of loan repayment plan is a crucial factor that must be considered before you apply for loan for the purpose of catfish farming. Depending on financial institution and the type of loan applied for, loan repayment can be almost immediately. At times repayment could be monthly, quarterly or annually. Any loan that will be used for catfish farming must have a period of grace when you are not expected to start repayment. I will recommend at least six months period of grace after which repayment can commence. Repayment of any loan meant for catfish farming must not take effect almost immediately and should not be monthly. It takes at least four months for catfish to grow to maturity.
- Interest Rate: Many catfish farmers have been deceived into getting high interest loans unknowingly. The marketers present these loans as very lucrative but mathematically the rate is higher than the national benchmark. Farmers could be deceived by a very low monthly interest rate which could be as low as 2.5 to 3 percent. However the annual rate is between 30 and 36 percent excluding other administrative charges. Worse still, some of the farmers that fall victim of this kind of loan are not even sure of the rate of return on their catfish investment. Most often, the rate of return on investment is lower than the interest rate of the loan they took. Little wonder that many are running away from catfish business. When next you plan to get a loan for catfish farming, annual interest rate is what you should ask for. Also try to ask about other hidden charges. Do not be deceived into working for others who do not have your interest in mind. They are only interested in feeding fat on your sweat.
- Initial Deposit: Banks and other financial institutions that give loan often request for deposit amounting to certain percentage of loan request before loan is given. This initial deposit could be as low as 5 percent or as high as 30 percent. The lower the initial deposit, the better the loan. The reason for this statement is that interest rate becomes higher when your deposit is higher. You pay interest on loan which is made up of your deposit and additions from the bank. Do not settle for loans with high initial deposit rate.
- Collateral: The type of collateral requested for by lending houses is a factor that must be considered. The best collateral security catfish farmer can give is his farm land. Loan conditions requesting for C of O of building in the city might not be appropriate for you.
- Loan Security: How secure is the type of loan you want to obtain? Some loans are insured directly by the lender. This is the best kind of loan for fish farmers and other agricultural businesses. This is due to the fact that business forecasting is not easy in our type of economy. If the available good loans are not insured, farmer should contact insurer and insure such loan at a cheaper rate with a reputable insurance company.
- Loan Renewability: A good loan for catfish farming business is one that can be renewed quickly after complete repayment. If you will have to wait for months, then the loan is not good enough. Continuity is very important in catfish business.
- Loan Duration: The duration of a loan defines how long a loan can be enjoyed before complete repayment. Short term loan like overdraft is not good for catfish farming. Medium and long term loans are more beneficiary to farmers. Farmers can use such loans to plan their farm development to sustain stability of production. NYSC WAP loan is a good example of this kind of loan.
- Rate of Return on Catfish Investment: The rate of return on any investment is a factor that must be considered to determine the possibility of taking a loan. A business plan prepared by an expert in catfish farming will help a farmer make a decision on loan viability. If percentage of return expected is low, loan might not be the best capital to finance your fish business
- The best source of capital for catfish business is personal savings and grant.
- Capital from personal savings and grant is worth more than any low interest loan.
- Guide your capital with all diligence and learn how to increase your capital any time you make profit. Increase your capital by at least 20 percent of your net profit after every sale.