Mission Impossible: Bank Financing

If you're thinking about starting-up a new business in Argentina, you can pretty much forget about bank financing. There is no credit available unless you qualify for a special government-subsidized program. Banks are happy to continue lending to consumers at 50% annual interest rates, but there is no legal business that can support that level of interest rates.

Loans are hindered by many different factors that, together, conspire to make bank financing a distant dream for most entrepreneurs:

1. Argentina is locked out of international financial markets
2. Government debt refinancing (both national and provincial) scoops up most available liquidity locally, since they can't borrow internationally
3. Laws favoring debtor rights over creditor rights makes secured lending risky and unsecured lending almost non-existent
   
4. High inflation and punitive taxes drive lending costs through the roof (bank interest is subject to 21% VAT plus provincial taxes that are often 3 times higher than other types of businesses)
5. Most Argentine small businesses don't declare all their income in order to avoid taxes, thus producing businesses which can't prove they have the ability to repay the amounts borrowed

International or expat entrepreneurs should expect to raise all debt at home. Entrepreneurs should look into getting equity lines of credit on their homes if they have properties abroad or look for unsecured lines of credit in their name or in the name of their businesses abroad. Credit cards that permit cash advances or personal lines of credit at low interest rates (they do exist) can also be useful.

Mission Impossible: Bank Financing