LoanRaja Blog- Personal Finance Guide

From the days of having 2-3 jobs on hand, ITES employees are facing the challenge of chasing non-existent jobs. Get wise with your life management in tough times

A couple of generations back, the biggest worry of your career was landing a job. And then, one was more or less assured of security for the next thirty-five years or so until retirement. Today, your stability depends not just on you, but your company’s financial health and practices, the state of the economy as a whole, and the state of finance of the company’s customers and the economy of their home countries. To drive home the point is the latest Nortel development.
An announcement made half way across the world can shake up our markets, and for some, shake up careers and personal lives too. The dust has hardly started to settle down on the Satyam storm, and we already have something new to think about – the Nortel bankruptcy filing. Nortel has filed for bankruptcy, chapter 11 — meaning that it has asked for credit protection from the US Government to settle dues while it restructures itself, a little like our BIFR (Bureau for Industrial and Financial Reconstruction).
Indian IT stocks promptly fell between 2-5 percent in reaction to this news, mainly because Nortel has been one of the large outsourcers of IT to India. In fact, it was also one of the first companies to start outsourcing to India and practically every outsourcer is a vendor to Nortel.
Other than Sasken, which depended on Nortel for ten percent of its revenues, companies have said that their exposure was too little to make any significant financial impact. But that is in percentage terms. In absolute terms, 0.5 percent of $ 2 billion (Infy revenues) is around $ 20 million, while Wipro’s annual revenues from Nortel is around $ 25 million. Even if Nortel pays off all its outstanding dues, future business is likely to be much lower. Sasken had around 300 people on Nortel projects and if one assumes that the others too had anywhere between 250-400 people, then it is that many jobs lost for the Indian IT industry.
There is nervousness across companies about more nasty surprises, given current economic conditions.
Suddenly, the IT industry is not as coveted as it used to be, as the downsides to the industry are being unfolded practically every week. Youngsters have been reported to be declaring that it was far better to join the good old stable government sector, rather than live with the uncertainty. A friend said that her brother-in-law in the US routinely checks his mail on Sunday evening to make sure that he had a job to go to on Monday morning!
However, the uncertainty is not going to go away and we simply we have to learn to live with. A few golden rules to keep in mind:
Do not give in to panic: Assess your situation. If you see your company floundering or fear for your job, start looking around before you are forced to. Remember also that some things are completely unexpected, like the Satyam fiasco. These are beyond your control and not worth worrying about.
Prioritize your financial needs: In happier days, you might have bought a car, refurnished your home and upgraded your television set all at once. Focus on the most important need and work downwards.
Gather as much information as you can about all available options: There are enough websites, newspaper articles, and consultants offering financial advice. Look at various options and choose the one that suits you best.
Spend wisely: As long as you spend only that which you know you can afford, you are safe.
Invest for the future: This period of economic slowdown is only temporary. Invest wisely for the future, whether it is in a house, a car, education, or stocks and mutual funds.

The uncertainty of the US elections is still not resolved for India. Yes, Barrack Hussein Obama will be the new US President, starting Jan 2009. But what he will do as President and how that will affect India is still very much in question.

Politically, Obama’s victory has been hailed as good for Indo-US relations, given his support for the nuclear deal and his statements on India and the US being “natural partners” and his anti terrorism stance (The only uncomfortable bit was the possible interference in the Kashmir issue).

But economically, the Obama effect is still an unknown. True, the stock markets fell further on the day the election results were announced. It happened all over Asia. But a lot of this had more to do with the worldwide financial slowdown than any confidence or lack of it in Obama.

Something else has happened which has little to do with Obama per se. For a country that worshipped capitalism to turn to government bailouts and talk of protectionism is to do a complete U-turn. In an environment like that, there is no saying what kind of changes may come about in trade and business and what effect it may have on its trading partners.

Whatever President Obama decides will impact not just the US economy, but the entire world. We have enough evidence in the US home loan crisis to prove that the global economies are so closely intertwined that the slightest upset in one part can result in a ripple effect across the globe.

Obama has already declared that the topmost priority for his government is to nurse the badly damaged US economy back to health. How he does it remains to be seen. If he goes the protectionist way – as he has been advocating in his campaign speeches – supporting American companies and American jobs while discouraging jobs going to foreigners or foreign nations – it may spell bad news for countries such as India which depend heavily on exports to the US.

For India has been most worried about his stand on outsourcing, affecting as it does the forex earning IT and ITeS. Obama has also gone on record to oppose increasing the number of H1B visas issued, a regulation that the IT industry has been using to its fullest advantage.

This is only adding to the fear that US companies will anyway cut down on their IT budgets in a slowdown and offshoring projects may decrease.

Saner voices tell us that Obama’s aim to turn around the US economy would only have a positive impact for the other economies of the world. The proposed stimulus package is expected to go into rebuilding the economy which in turn will help regenerate demand in the world’s greatest consumer country, opening up opportunities for trade once for all other economies once again.

There is also the assurance that is being offered by various experts. The US cannot afford to isolate itself or its markets in today’s highly interdependent world. The US needs other countries just as much as we need the US. In the Indian context, they have to depend upon India to access the trained IT skills, simply because they don’t have enough of it at home.

While there are likely to be changes in the way the H1B is issued and therefore some changes in outsourcing, analysts are also banking on the view that a slowdown is the best time to outsource, as it will help cut costs.

Still, economic health of nations and consumer sentiment patters do not change overnight. According to analysts, it will be at least the second half of 2009 before we can see any positive recovery happening.

Every entrepreneur has aspirations to make it big in business. But paucity of finance is a hurdle quite often. Now business loans are offered by almost all banks to help traders, businessmen and professionals to start or expand their commercial activities. Loans to self-employed professionals such as chartered accountants, architects and doctors also form part of this. These loans are available at competitive interest rates and low EMIs to widen the customer base. Every small and medium sized enterprise needs access to working capital. Simple unsecured business loans are available to small and medium enterprises for all the working capital needs.

No uniformity

Business loans are both secured and unsecured. Banks give business loan in the form of business installment loan, overdraft, loans against property, security and fixed deposits. The minimum tenure is 12 months and maximum 48-60 months. There are wide variations in the schemes provided by different banks and the amount of loan granted. It can be anywhere from Rs.25,000 to Rs.5 cr. SBI’s Traders easy loan scheme provides loans to entrepreneurs, professionals and self-employed. Standard Chartered Bank has a business installment loan. A business installment loan (BIL) is a loan, which allows you to borrow cash to accommodate your business needs whether for short-term working capital funding or to support your expansion plans. Repayment is by EMI through post-dated cheques.

Loan under SBI’s scheme is sanctioned against equitable mortgage of property. The loan can be repaid in monthly or quarterly, or half yearly installments in a period up to 5 years. Minimum and maximum amount of loan is Rs 25,000/- and Rs 5 crore. Business requirement is assessed on the basis of projected business turnover. Interest at floating rate is charged at monthly intervals on daily reducing balance. Standard Chartered Bank offers two borrowing options: Borrowing against the fixed deposit and taking an unsecured loan. When your enterprise requires urgent finance, an overdraft against your investments may be just the right option. An advantage is that you pay interest only on the amount utilized.

Every lender wants to make sure that loan will be paid back. Collateral property is the common way. But risk factor is always there. Banks will analyse your previous experience in the business and your success chances of your new business plan. If you want to take a loan for expanding your business the lenders will analyze your business history, tax returns, revenues and liquid assets. If you are planning to start new business the process may be complicated. How you present your business plan plays key role in getting a loan.

Eligibility

Business credit is generally offered to the following types of concerns: Sole proprietorships, partnerships and private limited companies. Income requirements: Net Income of the concern should be more than Rs. 1,50,000 per annum for business credit up to Rs. 15 lakh and over Rs.3 lakh for business credit above Rs. 15 lakh and up to Rs. 35 lakh. A maximum of two incomes of the partners / directors holding a minimum of 25% stake each can be clubbed to the income of the concern.

Documents

There are differences in the documents required for sole proprietorship firm, partnership firms and private limited companies.

• Proof of identity of the sole proprietorship firm.
• Proof of individual identity to be submitted for the proprietor.
• Proof of residence address to be submitted for the proprietor.
• Certified profit and loss and balance sheet for last two years.
• Copies of IT returns for the last two years.
• Bank statements for last 6 months for business credit up to Rs. 15 lakh and last 12 months for business credit above Rs. 15 lakh.

In the case of partnership firms proof of identity of the partnership firm as well as proof of individual identity for the all partners have to be submitted along with a copy of the partnership deed. For a limited company proof of identity of the limited company, copies of memorandum and articles of association, certificate of incorporation, board resolution, copy of annual return establishing the shareholding pattern have to be submitted.

Charges

A processing fee of minimum one percent of the loan amount is generally charged. There are variations. Banks deduct it from the loan amount, which will then be credited to the current account of the borrower. Some banks charge prepayment charge of up to 5 percent while others don’t charge anything. In the case of overdraft there is an annual review and lender will charge an annual fee every year.