I think I experienced one of the major weaknesses of The Philippines as a country and an economic entity today, and this is it: There is essentially no credit rating in this country. If you want a 6 million piso loan, you need to have 6 million pisos worth of land as collateral. If you have that, instant loan approval. If not... nothing.
If you have a perfect credit history from America... but own no land? Nope. Nothing.
If you have a successful business and employ 100 people, have lucrative contracts with major businesses, and have a proven track record of success (like Mike Turner)... but own no land? Nope. Nothing.
If you have a 6 million piso diamond... but own no land? Nope. Nothing.
And now we all know why rich Filipinos have vast quantities of land that they never use. Lesson learned.
I took my friend, Nelson Roberts, a retired chicken farmer from Arkansas, out to dinner at Sentro tonight. (The restaurant has a collection of microbrew beers from America that they have imported. A very nice addition to a meal, and a nice addition to the drinking possibilities of Cagayan De Oro.) I pumped Nelson for all the information I could about chicken farming during the hour over dinner. I certainly came away more confident than ever about my business plan. So, on the business front today: A step back, but at least some tidbits of good news to offset things a bit.
After that, it was a jeepney back home. I'm starting to mind riding in a jeepney less and less. In fact, I am almost to the point where I would prefer it over a motorcycle... if there were just jeepneys running after 9:30 at night, and taxis didn't spend all of their time stuck in traffic in downtown CDO.
Oh... one more thing: Epril and I ran into Tom Fagan at Sentro tonight. We hadn't seen or heard from Tom in almost 18 months. Due to his health concerns (his incredibly long-running diagnosis of ALS) we had assumed the worst, but amazingly he still looks as healthy as ever. Yay Tom! Good to see you again!
Is that 6,000,000 to make it happen or to make it happen in a bigger and grander fashion?
ReplyDeleteTom,
ReplyDeleteYes: We have 3 million ($66K) in capital already, and wanted to add another 6 million ($132K).
Both Attorney and I thought we could get the loan because instead of collateral, we have a contract already worth 1 million pisos ($22K) profit per month (that will grow almost instantly to 6 million pisos ($132K) profit per month), but the farm needs $9 million to be large enough to meet the initial contract requirements. (It's a contract to supply chickens on a daily basis to a certain fast food restaurant chain here in The Philippines.)
So, instead, we'll have to either find financing from non-financial institutions, or worst case scenario, we'll have to grow for a year before we get the contract, but that will (should) still be waiting for us at that point.
Any investors? The return is 33% per year for 3 years, and then 33% plus return of the initial investment on the fourth and final year.
Jil,
ReplyDeleteWhy would you start a business mortgaged to the hilt in unsecured loans just to take a gamble? Just take it slow and let it grow homie. If contract is on the up then ask for a LC which btw is bankable.
Anon,
ReplyDeleteFair points. I'm not sure I agree, primarily because our worst case estimates give a return of 150% during the first year of operation... but should be 200%, and that is assuming no further growth during the first year of operation. But, as I said, I do see what you are saying. We could do the entire thing debt free, and it would only set us back about a year (I don't recall the exact number of weeks... but somewhere around that.)
Now, about that last sentence... "on the up", "LC"? Can you explain that?
You talking 132K US dollars per month? Either chickens are outrageously expensive in PH or you'll have half a billion of them i your farm? Either way, I wish you good luck with your new business venture!
ReplyDeleteKris,
ReplyDeleteThe initial contract is for 1000 birds per day... more or less the needs of one restaurant. The contract should expand to 5000 chickens per day, covering an additional 6 restaurants if things work out. Profits per chicken are about one dollar. 5K chickens x 30 days x $1.
Of course, that is just the first farm in the first city... and only the first year. The second year when we open up an additional 4 farms... all substantially larger than the first... that's when the money starts to get big.
The simple fact is, I've spent the last 18 months examining in minute detail the entire production process of chicken growing in The Philippines, and identified countless needless costs, and come up with a dozen simple but effective methods to reduce the expenses of growing, and streamline the process in order to grow a chicken that we can sell for 15% less per kilo than the competition... and still make more profit per chicken than anybody else.
And no, I ain't giving away my secrets. Sorry.
Jil do you have a 401k through your work. If so, you could possibly get some of the money with a loan through that. Its payroll deducted and its usally only 1% above prime in interest.
ReplyDeleteusally you can draw out at least half of what you have in it excludeing what your company has in it for their match. You may be able to do it online through the company that is manageing the 401k account
Mike,
ReplyDeleteYes, I know. But it's too small for this purpose.
Forgot to say if LC is in place you can often "loan" against the LC. I think 6m shouldnt be that hard to come up with if they see the potential profit margins are certain. Anyway, Just ask the Atty about a LC.
ReplyDeleteAnon,
ReplyDeleteOh... LC: Letter of credit, right? Yes... we discussed a letter of credit with the banker and he said that was not possible, also, without collateral of land that is worth 100% the amount of the issue.
Like I said: No land, no pisos.
A few questions:
ReplyDelete1. If the restaurant is now in business, they must now have a source of chickens to satisfy their demand, or are you saying they are short 1000 chickens a day to provide the demand?
2. The hopeful 5000 chickens per day is only if things work out for the restaurant. Something a prudent business would hardly bank on.
3. I know of a chicken contractor for Magnolia, and I must question the $1 profit per chicken.
4. If supplying 5000 chickens per day, how do you plan to keep the varying developed chickens separated? It would almost require 45 different coops.
5. If you have done the math, I wish you well. But I have run into many others that have claimed to have done the math, and they lost their ass.
Anon,
ReplyDelete1. The restaurant is always struggling to find a consistent supplier... a guaranteed single source of a guaranteed daily number of chickens.
2. Granted. We are only banking on the fact that in the perfect competition arena of poultry sales, somebody coming along and suddenly skewing the price by 15% will sell all their chickens before anybody purchases chickens from the next competitor. Simple ECON 101.
3. I'm happy that you question the profit... or, more accurately, don't question the profit of Magnolia. You and everybody else. That's why I've got an open playing field: Nobody has sat down and taken the time to look things over.
4. That's a major part of the secret.
5. The worst I can do is grow and sell (30 x 1,000) = 30,000 chickens per month like any old chicken farmer at prices that are the same as any old chicken farmer.
Jil,
ReplyDeleteNo you do not need land if the buyer opensa LC ,thats pure bs, I strongly suspect the banker didnt understand what you where asking. I am positive of this as have had several LC opened in the past when doing business, in fact I wouldnt walk across the street to do business with a person or company not willing or unable to open a LC. A LC is cash your buyer puts in the bank and that cash is bankable and protects both parties, if the buyer opens a LC it doesnt cost you anthing and you do not for obvious reasons need to put up collateral. Regarding collateral, 6m isnt much in regards to land holdings really but if you dont have it maybe you can bring a wealthier person in as a silent partner or something if such a person sees potential in your proposition. Also, There are other methods of loans available which do not require land. Is you partner a gov employee, a member of a professional organization etc? If so those things also present oportunity to avail financing.
Anon,
ReplyDeleteI see what you are saying. Attorney Joe mentioned something like this to the banker, stating that the buyer could deposit payments directly in the bank.
Since we needed the 6M up front as capital to be consumed immediately, the banker said it wouldn't be a line of credit anyway.
Yeah... I'm not to savvy on the banking stuff. That's what I have Attorney Joe for. I'm sure that if there was a way to get money from the bank, he would have pounced on it for me.
As for other investors... yes, my partners and I are looking at other ways to raise the additional capital.
As I said before, it isn't a matter of opening versus not opening... the capital is only a matter of "opening extra big" versus "opening sort of big."
Jil,
ReplyDeleteScratch part about bringing in wealthy investor as the possibly willjust try to cut you out. If its sure thing can you not get US financing somehow even if it means asking your family for loan or etc? My advise though is to start small and work up as that why your debt free and can learn on the road to sucess. I mean in a previous post that you didnt publish I pointed out some worse case scenerio and theres no reason to take such a risk. I mean you dont appear to be starving or desperate enough to risk everything just to obtain a some pesos. Anyway, Im glad to hear your idea and wish you the best of lucj in your pursuit.
Anon,
ReplyDeleteYou made a comment on this post here that I didn't publish? I'll go back and look. Sometimes what happens is a bunch of "Comment Published" e-mails arrive and with them is a single "Comment Requested" e-mail that accidentally gets missed mixed in with those. They look basically identical in my in box.
Jil,
ReplyDeleteIs it that the bank isnt comfortable with the LC being deposited in their bank for security purposes? If so deal with a larger bank and have money deposited in Manila, in past I saw first hand BPI refuse a deposit due to ammount involved. I do know from experience that a LC can be much larger than 6m as our business mentioned in previous post had LCs much larger than that on a monthly basis. Also, Depending on who your buyer is it may be that they arent comfortable with tying up those levels of money in a LC when they can roll it in day to day business operations rather than let it sit stagnant.In our situation of construction supplies it wasnt really a issue to get a LC due to the persons and corporations involved.
Regarding the need of money upfront. You dont touch the LC, you bank it. I mean you use the LC to avail needed supplies etc which works since the people know the money is there. Then once you meet demands of the LC (say deliver the chickens to plant or wherever) the cash is released to you and you pay the people you owe. This is how our construction supplies business operated with basically no cash upfront.
Anyway, Im sure the Atty has overlooked all options.
Jil,
ReplyDeleteIts ok. Im sure you have better , and more productive, things to do than look for my lost comment. Besides it wasnt that important anyways was just a post about the business I had around 6yrs ago that depending highly on LCs being there. Besides your thing may well be diffrent entirely since its chickens and not construction supplies. We just supplied construction supplies to the housing projects of Manny Villar and to Samsung. Was just something I got into by accident.