Challenges of Starting a Business in Colombia

Currently, there are great challenges to starting a business in Colombia. Yes, there are both political and social changes that change the landscape for new organizations. For example, state regulations, financing projects, and bank requirements to obtain a loan. This is a fundamental aspect of the creation of new companies.

For example, both the possibility of a recession and the international situation threaten economic growth and job creation. In response, entities such as the Banco de la Republica and the Ministry of Finance are working to contain the increase in the cost of living and interest rates in order to avoid economic deterioration.

In the country, entrepreneurship is an increasingly common activity, which has allowed many people to start their own businesses. However, starting a business in Colombia also brings with it some challenges.

These challenges can range from obtaining the necessary resources to start a business, to the application of the laws and regulations that govern the business sector, as mentioned above. Now you may be wondering: What are the challenges of starting a business in Colombia? Let's see it here at Linexperts!

5 challenges of starting a business in Colombia

The country has experienced a boom in the creation of new companies, especially in the technology and services sectors, which has had a positive impact on the economy. However, entrepreneurship in Colombia also faces challenges such as a lack of access to financing, competition, and even insecurity in some regions.

In addition, in just one-week, negative news began to emerge, such as the worrying inflation figure of 13.12% in 2022, reported by the Dane, which represents the highest level in the entire century. That is not all; there is uncertainty about the new reforms of the current president that seek to improve the conditions of workers; however, many businessmen see these changes in a worrying way.

Also, noteworthy are the changes in taxes for businesses, which are concerned about the current government's intention to increase rates.? It is time to know the five key challenges of creating a business in Colombia.

1. The costs

Everything is expensive in Colombia, and so are many people, due to inflation. This is an important aspect of creating a business, since inputs are the resource for the proper functioning of a business.

On the other hand, the budget is one of the main barriers to the creation of companies in Colombia. The cost of starting a business can be prohibitive for many entrepreneurs, especially those with limited resources who use their savings to meet their goals; however, it is also common for them to apply for bank loans.

But many forms and bureaucratic procedures are often complicated and difficult to understand. Sometimes entrepreneurs must hire professionals in order to comply with a myriad of requirements. This can lead to delays in the business creation process.

Let's take a case: an entrepreneur who wishes to create a company in Colombia must consider the associated costs, such as commercial registration and registration fees issued by the Chambers of Commerce for the current year.

The registration fees for establishments, branches, and agencies have a cost of $48,000 for capital from zero to $2,775,038 (72.5 UVT). If the company's capital is between $2,775,038 and $15,611,884 (410.8 UVT), the registration fee could increase up to $103,000. In the event of exceeding that amount, the cost would be $154,000. In addition, other expenses appear:

• RUES form = $6,500 Colombian pesos.
• Certificate of existence and legal representation = $6,500 Colombian pesos.
• Books of minutes of members = $16.000 x unit
• Certificate of commercial registration: $3,200 Colombian pesos
• Payment for registration fees: $48.000

2. Financing

On the other hand, financing is a challenge for many entrepreneurs. Banks are often unwilling to offer loans to entrepreneurs, especially those without a credit history. That's not all; they also scrutinize whether they have negative reports with credit bureaus.

This can make it difficult for entrepreneurs to obtain the funds needed to start a business. Therefore, they must rule out the possibility of a loan, even if they have the resources to pay it off in the short term.

Some choose to seek external financing, such as from foreign investors, who must believe in the business idea; otherwise, they would not dare to invest. This can be a good option, but it also entails risks, since entrepreneurs must be prepared to comply with the requirements and conditions established by the lenders.

The worst of all is when they apply for loans on insecure applications that are scams. The consequences are dire when threats and exaggerated interest charges begin. But where can I find secure financing? The answer lies in the following options:

Bancóldex: Bancóldex is a Colombian business development bank for credit solutions. Keep in mind that the success of the credit application depends on factors such as timely and consistent accounting and financial information, the company's payment capacity, payment history, and the existence of collateral to support the credit.

Factoring: is a financing alternative in which companies can obtain liquidity by selling their invoices receivable before the due date. This tool allows them to finance themselves with their own accounts receivable, without having to resort to external loans.

iNNpulsa: promotes initiatives such as Aldea, a platform that facilitates the connection between entrepreneurs and specialized professionals, mentors, advisors, investors, and financial institutions. Over a period of one year, Aldea has provided support to 178 ventures and achieved an investment of $6.3 billion in specialized services.

Pacific Alliance Fund: Its focus is on projects in fintech, health, biotechnology, consumer and trade, agribusiness with technology and communications, and technology in general. The fund provides the opportunity to support Colombian initiatives that seek to partner with allies in other Pacific Alliance countries, fostering growth in both territories.

Emprender Fund: offers seed capital through open calls in which entrepreneurs can present their business ideas and apply for financing. These calls evaluate projects based on criteria such as technical, economic, and financial viability, social impact, and employment generation.

3. Understanding and applying laws

Another challenge faced by startups in Colombia is understanding and applying the laws and regulations of the business sector. This is a challenge for entrepreneurs, especially if they have no prior knowledge of the subject. Therefore, it is important that they seek legal advice to be aware of all the laws that apply to their business.

This is the case with the tax reform, which aims to raise 25 trillion pesos. However, due to the modifications made in the document, it is estimated that the collection will be reduced to 20 trillion pesos by 2023, and it is expected to collect an additional 23 trillion pesos by 2026. A 3% surtax for financial institutions is proposed here, which is currently scheduled until 2025. This implies that the financial sector would be subject to a total fee of 38%.

The labor reform that was shelved by the Seventh Commission of the House of Representatives on June 20 also appears. However, now the government intends to file it again on July 20. Said reform has several points:

• Give priority to hiring for an indefinite term.
• Differentiate and preserve daytime and nighttime working hours.
• Guarantee the payment of 100% of Sunday working days.
• Re-establish advance notice for workers.
• Protect the labor rights of workers on digital and delivery platforms.
• Eradicate violence and harassment in the workplace.
• Strengthen the protection and promotion of the right to unionize.
• Maintain the duration of eight hours in the daily workday.
• Prohibit collective contracts with union organizations for services or projects.
• Establish the agricultural workday modality.

4. Competing in a highly competitive market.

In addition, Colombian entrepreneurs must also face the challenge of being profitable in a competitive market. This means that entrepreneurs must be aware of market trends to ensure that their businesses are well positioned to attract customers.

To do this, they have to apply tactics focused on the digital world to avoid being left behind and thus maintain long-term profitability.

5. Find and keep the best employees

Finally, when starting a business in Colombia, entrepreneurs must find and keep the best employees. Therefore, it is important that there be a healthy work environment along with legal benefits to reduce resignations that endanger the stability of human talent management.

Employees are looking for companies where they can grow, have time for the family, and obtain social benefits, along with other advantages of indefinite-term contracts. Yes, people want job stability.

As you can see, there are many challenges to creating a company in Colombia. These range from obtaining the necessary resources to start a business, to the application of the laws and regulations that govern the business sector. What other challenges do you think exist in the business world in Colombia? We would be happy to read your opinions.