Let borrowing from a bank be your last option to increase your working capital.
Even the bankers, knowing how delicate their product is, have named their loans RISK ASSETS. They know why.
Every banker knows that there is every probability that a borrower may not be able to repay a loan he or she has borrowed even with good intentions hence, they set aside a portion of their future profit to provide for a possible loss of the loan amount.
Central Bank of Nigeria also knows that loans, even to the most trustworthy customer, may not be repaid as at when due. In my career as a finance person, I have seen many people who call the name of the Lord or Allah who by character don’t repay loans as timely as seemingly irreligious ones.
Therefore, CBN has given banks, a prudential guideline on how to treat loans which endpoint is that the bank should use a portion of its profit or capital to replace any amount of loan a borrower could not repay as agreed in the offer letter. It is that bad.
The failure of a customer to pay his/her loans leads to the termination of the careers of his account officers and loss of profit or capital to his/her banks.
Most times, the money realized from the sale of the collateral pledged by the borrower many not be sufficient to offset the outstanding principal and accumulated interests.
To punish loan defaulters, CBN has banned banks from lending to anybody or a director of a company or his new company, who has a bad loan in his name or that of his other or old company and whose name has been submitted to credit bureaux that maintain the list all borrowers in Nigeria.
With this in mind, my dear friend, think well before you approach a bank to ask for loan.
The following advice may be useful to small and medium enterprises owners who are desirous of bank support :
1. Don’t borrow more than 25% of your total working capital from a bank. At such levels of loan, it would be easier for you to repay on time.
2. Do not use bank’s loan to finance a speculative business which has a high probability of failure. E.g. Using bank loan to stock a product like palm oil, hoping to sell when the prices move up. What if the prices move down?
3. Do not use bank loan to import perishable products like fish and fruit juices or even drugs. Delayed shipment or mechanical failure could lead to the product spoilage and a huge financial loss. However, insurance can cover this risk to a reasonable extent.
4. Do not use bank loan to finance, stock or import contraband no matter the assurances of the clearing agents. Once customs seize the goods, you are doomed.
5. Never use bank’s money to finance luxury items. That’s a stupid thing to do. If a bank finances your mortgage, ensure that all or part of the apartment is rented to yield income to help you service the loan.
When you have a misfortune of failing to repay your loan, don’t run away from your banker, engage them.
Enlist a lawyer and accountant to help you in negotiating a foreclosure of a loan you can no longer repay. Get a discounted full and final settlement amount usually tenored for 90 days and sell your collateral yourself. When the bank sells, you may get a lower sales figure for so many reasons I will state another day. The buyer of your collateral shall pay into your account in the lending bank who will in turn release the title documents to the buyer.
When you want to sell the property pledged against a loan, never disclose to the buyer the real reason why you are selling to avoid wicked pricing. Ensure that you have already agreed on the selling price before you give out a copy of the title document for legal search.
Evidence that you borrowed and did all you could to pay down your loan in banks is a certificate of good character and a beautiful music to the ears of bankers. It matters a lot.
Please note that even when you die owing a bank, you may spend a long time in purgatory (if you are catholic faithful) until your loan is fully repaid by your heirs; prayer alone on a day like All Souls Day can’t purify you. Non-catholic debtors would go straight to hell as they rejected the grace of purgatory while on earth.
Remember, no debtor shall enter Paradise. Debt is a blemish and a tar on the White Garment.
Therefore, don’t borrow if you can’t repay or do all you can to repay. This applies to debtors to individuals or institutions.
Chief Anayo Nwosu, Ikenga Ezenwegbu is a Corporate & Investment Banker in Lagos.