Back to the prime of life

Chapter 180 Government Credit Enhancement
There are many ways for startups to raise funds from the market. In addition to equity venture financing, lending is also a way, but it is less common than equity financing.

This is not to say that the form of lending is bad. The main reason is that newly established micro and small enterprises are like individuals with little influence. No one cares about you, so how can you easily get a loan?
However, Lu Changge and Lu Mang faced a different situation.

Besides his social connections as a boss, Lu Mang's rapid success, which also has significant socio-economic implications, is another important reason.

Of course, the origin of this idea lies in the executive meeting that had just been held at the highest level, and the four trillion yuan stimulus plan that people later became familiar with started from there.

However, people who don't know much about this probably think that we only released 4 trillion yuan in 08 to address the financial crisis.

Actually?

This stimulus package is only at the central level.

Once the restrictions were loosened, local governments across the country began to borrow heavily, with the total stimulus spending reaching tens of trillions of yuan.

Why? Because the economic stimulus package itself includes a clause to "remove restrictions on the credit scale of commercial banks and reasonably expand the credit scale"?

Speaking of which, for someone like Lu Changge who has been working with written materials for many years, there has always been a question: what constitutes reasonableness?

It wasn't until he was nearly 40 that he gradually came to understand.

If things are done well and there are no problems, then it's considered reasonable; if problems arise, then it's considered unreasonable.

In short, Lu Changge did indeed lead people to discuss loans with Jiangzhou Bank in the development zone, of course, under the mediation of Xu Weiguo.

Because it was a rather important matter, he brought Chen Xiaohe, Qin Jun, and Yin Anyan with him, so that there would be more people at the meeting and he wouldn't be all alone in the room.

Sitting in the Buick minivan rented on a yearly basis, Lu Changge explained to them why he agreed to the loan, "...Regarding the loan, we first need to change a concept, which is that a company that doesn't owe a penny is not a good company. Appropriate borrowing can actually be beneficial to promoting the company's rapid development."

Even with government backing, we can't keep delaying payments to suppliers indefinitely, as they also need funds to operate their companies. Furthermore, our sales are increasing rapidly, so we need to build an inventory management system and a logistics network, which is very expensive.

Chen Xiaohe added, "I found a company that is very similar to us. They have launched a 30-day unconditional return and exchange policy. If we were to do that, there would still be some risks."

Yes, business battles are often quite straightforward. If Luman also has this policy, and you are currently small in scale and your logistics system relies entirely on third-party logistics companies, which were also not mature in 2008, then your competitors will maliciously target you, causing a large number of returns and exchanges in a short period of time. Putting aside the money, the receipt and delivery of goods alone can be devastating.

Lu Changge knew which company Chen Xiaohe was talking about, and he also knew that their annual sales this year had exceeded 100 million yuan.

Once the viral marketing campaign of Vancl emerged, it became even more difficult for Lumang to continue to carve up this market.

"How much will you borrow this time?" Qin Jun asked.

Lu Changge said, "Since he has asked, I will start with tens of millions."

Gudong!

Qin Jun's heart raced slightly. Half a year ago, they were excited about sales of a few dozen orders. Now, they hadn't actually made much money. But he didn't know what was going on. How did they end up with a debt of tens of millions of RMB?

Chen Xiaohe said, "That's just his thinking. After all, we are still a small company. Banks have an approval process for lending money. It's not like they lend money blindly."

Because Xu Weiguo made the arrangements, Lu Changge was able to directly contact the branch manager of the district branch.

This person was a woman, wearing glasses, and looked very knowledgeable. Her hairstyle was a permed, fluffy short haircut, which made her look very elegant. People, when they have money and power, their appearance changes.

Through Xu Weiguo's introduction, Lu Changge learned that her name was Luo Yunxuan, and as for her age... out of politeness, he decided not to ask.

Perhaps because of Director Xu's influence, President Luo was very polite to Lu Changge, and said with a smile, "Mr. Lu is now a celebrity in Jiangzhou City. You may not know, but my wife is a teacher at Jiangzhou University of Science and Technology. I knew about you much earlier than most people."

Lu Changge was somewhat surprised, "Oh? What a coincidence, which college is he from?"

"Marx, he taught politics."

"That's great! I'll have to learn from you more in the future. These days, whether you're doing business or working as a civil servant, you can't get by if you don't understand politics."

Xu Weiguo grinned and smiled ingratiatingly. This kid is starting to tell him these kinds of jokes now.

"Of course, of course." President Luo turned his head to the other side and said, "Director Xu, you didn't actually need to come today. I really know Mr. Lu, and I even have his annual pass for the Hailan Bay Swimming Pool."

"I have no choice but to come; this is a task assigned to me by Director Cheng."

That's a very suggestive statement. What does "Director Cheng's task" mean? It means it's something the top leader assigned. If Luo Yunxuan hears that, she'll probably have to give him a huge green light today.

However, she remained cheerful and said, "It's alright. You all know about the shift in credit policy last month. Actually, what we bankers are worried about now isn't anything else, but rather not being able to meet our lending targets."

But even with technological advancements, and despite policy emphasis on providing financial services to the most needy small and micro enterprises, and even with relaxed policies, the core logic of lending remains unchanged.

Lu Changge knew a little about this, which is why he said four words: "mortgage guarantee".

Luo Yunxuan immediately affirmed, "That's right. If there are problems with the loans and they become bad debts, we can't just say that we were pressured by our superiors to meet our lending targets, can we?"

Well, everyone understands this; a knowing smile is enough.

The terms "breaking with convention," "innovative measures," "boldly pioneering," and "vigorously developing"... use whatever you like, but none of them imply that you should do anything illegal or against regulations. Of course, finding a balance between breaking with convention and complying with laws and regulations is up to each individual's ability.

"Personally, I believe that Mr. Lu's future is not bad, and his path to success is also smooth. However, these kinds of asset-light companies that develop their businesses through the Internet all face the same problem, which is insufficient collateral. Of course, I'm not saying it's impossible, but Director Xu is here today, so let's think of a solution together. In the end, it has to be compliant and legal."

Lu Changge hadn't dealt with this kind of content in his previous life, so he didn't quite understand what Luo Yunxuan meant by Xu Weiguo's willingness to help. Did she expect him to vouch for him in his capacity as deputy director of the development zone?

This is ridiculous. So he didn't say anything.

Then, Xu Weiguo uttered a new term, saying, "The district is planning the government's credit enhancement, but the direction from above has just changed, so it won't be quick to introduce a temporary measure. It will take time to study it. But this is definitely true; the relevant documents have a final draft and are currently soliciting opinions."

"Government credibility enhancement?"

Seeing that he didn't understand, Luo Yunxuan said, "President Lu just said four words: collateral and guarantee. If collateral isn't enough, then we can only try to find a guarantee. The so-called government credit enhancement means that the government provides credit support for loans to small and micro enterprises."

How exactly should it be provided?

Xu Weiguo said: “Referring to the practices of other provinces, there are three main methods. One is to establish a risk compensation fund. If a company has bad debts, this fund can compensate for a portion of the losses, such as 30% of the bank’s losses. The second is to use government-controlled guarantee companies to provide guarantees for companies. The third is to provide interest-subsidized loans.”

These are all rather specialized things; people outside the relevant fields might not even know them. Even Lu Changge, who has worked in a state-owned enterprise for so long, didn't know these things.

But after listening to them, they are essentially the same: the government shares some of the bank's risk.

"Can Mr. Lu wait?"

Luo Yunxuan asked the question because what Xu Weiguo was talking about was still in the process of being developed. No matter how good the idea was, it was useless if it was just empty now.
Before Lu Changge could speak, Xu Weiguo stepped forward and said, "President Luo, the internet is developing rapidly, changing every day. How about this: our district can issue a letter of commitment, clearly stating the government's commitment to enhancing credibility."

A strange look flashed in Luo Yunxuan's eyes. She hadn't expected that Lu Changge would hold such a high position in the heart of a deputy director of a development zone.

"In that case, I'll try to coordinate. I also need to report this special matter to my superiors, but Director Xu's letter of commitment is generally accepted."

Lu Changge was caught off guard; the matter was handled more simply than he had expected.

Even though he had guessed some of Xu Weiguo's changing thoughts, he hadn't expected him to go to this extent, although... those kinds of promises usually didn't have any consequences. It's not uncommon for a new leader to disregard previous promises; after all, they weren't legal documents and had no binding force.

Even so, this thing isn't something that comes out casually.

Finally, he only asked one question, "How much money can you give us this time?"

"1200."

This was told to him by Xu Weiguo after he left the bank, and he also explained, "President Luo wasn't lying; significant amounts and special matters do need to be reported. But it's not a big problem."

Lu Changge was overjoyed and sincerely said, "I really have to thank Uncle Xu for this. For a company like ours, not having enough development funds is a major problem, and this has really solved our urgent problem!"

"No need, take it slow. Lumang can develop just as well. It's doing very well right now. And we hope that Lumang can make even greater contributions."

"Don't worry, there will definitely be better news in 09."

"Then I'll be waiting."

"no problem!"

Lu Changge is now starting to make promises with absolute certainty.

In fact, this money is indeed crucial.

Running a business is sometimes like climbing a mountain staircase. After he returned from Nanjing, Lu Mang's sales immediately reached a new level, and it was clear that there was huge potential for future growth. However, so far, Lu Mang's store only has more than twenty kinds of products.

In the internet industry, there is a concept called 'customer acquisition cost', which means that every person who clicks into your store is actually someone the company has paid to acquire.

So, now that the company has invested in this person, shouldn't it make a profit?

But how can we make a profit? If there isn't enough variety of goods, some people will come, find that there's nothing they like, and then leave.

This is what Chen Xiaohe previously referred to as 'wasting sales opportunities'.

Therefore, for e-commerce companies, expanding product categories is not an expansion behavior, but a behavior to reduce costs and improve efficiency; in fact, it is for survival.

This may seem counterintuitive at first glance, but it is true.

This is why JD.com later resolutely expanded its product categories. Items like computers and cameras are too expensive, and consumers who have purchased them once are unlikely to repurchase them for at least three to five years. From a customer acquisition cost perspective, if JD.com spends a lot of money to attract customers, only to sell one or two items in the end, it's not only a huge loss, but also unsustainable, as customer acquisition costs are becoming increasingly expensive.

Therefore, quickly obtaining a large sum of money and rapidly expanding product categories is the way to reduce costs. As for continuously tying up funds for inventory, this is not a long-term solution.

In addition, Lumang can be even bolder in starting its recruitment plan. In the future, it will be able to ship tens of thousands of items every month, which is equivalent to serving tens of thousands of users. It is definitely not feasible without manpower.

Furthermore, Lu Changge will be even bolder in marketing.

"...Anything that can get money to develop the company is good. Besides what I just mentioned, another advantage is that it allows us to avoid raising money in the venture capital market with non-renewable equity. Not to mention, with the current financial crisis, investment institutions are very cautious, and even if they are willing to invest, the price they offer will not be very high."

The most direct approach is to offer a small amount of money and then demand a very high percentage of shares.

Lu Changge is no saint. He even 'sacrificed' himself. He wouldn't be happy if he ended up with only a single-digit percentage of shares. Why? To do charity.

But businesses need money to grow rapidly. So, Xu Weiguo really did them a huge favor.

Qin Jun's heart gradually calmed down. "In that case, it will be much more cost-effective when we raise funds again. It's just that repaying the money will be a bit troublesome... After all, the money raised through financing doesn't need to be repaid."

Lu Changge touched his nose, looked out the window and said, "You're mistaken. In business, there's never any money that doesn't need to be repaid."

(End of this chapter)