Operation Frics, episode #2 - How to fund a business?

Latvian Television's Aizliegtais paņēmiens (Forbidden methods) show has unveiled the second episode about the reality of running a small business in Latvia. Here's LSM's recap of the second episode that dealt with obtaining funding for the company.

In the course of an investigative experiment journalists opened Frics, a french fries restaurant in the fashionable Jūrmala resort and chronicled how they fared by making numerous secret recordings.

They weren't trying to make some hard-earned cash, but rather wanted to understand, see and feel what's it like for a small business to face the bureaucracy and possible corruption behind the scenes in Latvia. 

Stirring the public

The previous episode dealt with obtaining permits for starting the business. After the episode aired, two officials - an extremely unhelpful bureaucrat and a suspicious policeman who was said to 'be able to help' the small business owners - were put under scrutiny.

The bureaucrat repented, telling Latvian Television that she'll "try bettering her communication and attitude towards people", while the policeman remarkably sent threatening texts to the LTV's journalist before the airing of the first episode. Proceedings have been started for firing the unscrupulous servant of the law, and there is talk of starting criminal proceedings for threatening the journalist.

While Economics Minister Dace Reizniece-Ozola has set out to ensure that information about starting a business is more readily available online.

In the episode

The episode panned out the company's money flow and the sources of products, many of which couldn't be obtained locally. The profit margins were very thin, but the show's makers could, theoretically if not practically, make ends meet, partially thanks to tax benefits that are in place for budding businesses.

Getting their hands on the dough proved tricky, however. Not a single bank they visited was willing to give them a loan. Not so with institutions. The Latvian Development Finance Institution Altum would give the money, but at least 30% of the loan has to be secured, and in some cases it's 100% that has to be covered with a mortgage.

In the studio

This time the studio guests were Elīna Egle, head of the Latvian Business Union, and the board chairman for Swedbank Māris Mančinskis, along with deputy head of the Latvian Development Finance Institution Altum Jēkabs Krieviņš. 

Egle held the view that small and middle-sized business financing is one of the largest problems across the EU, while Mančinskis suggested that businessmen try crowdfunding options.

Egle said that most budding entrepreneurs - about 70% borrow money for starting their own business from friends or relatives, and Mančinskis confirmed that as many as 50% of the newly-created companies stop working within the first year of their operation.

Meanwhile, Altum singles out the companies it extends credit to, so the failure rate for this state agency's companies is only about 15-25%. 

The episode seemed less scandalous and less noisy than the first one, but that's understandable as it dealt more with numbers and money rather than colorful characters of the resort.

The five stories are airing once a week every Monday, starting November 2 on Latvian Television 1. LSM offers recaps from the episodes that might appeal to an international audience. The next episode will chronicle the company looking for and hiring employees. Episodes #4 and #5 will be concerned with watchdog institutions and taxes.

The show can be seen online - look for 'Aizliegtais paņēmiens' here.

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