TDNigerian banking and financial space is getting interesting in that with a mobile application on hand one can access soft loans from almost all the commercial banks repayable over a short period of less than 48 months.
In this area also are micro lenders using financial technologies to solve immediate borrowing needs of the public.
These types of borrowing are convenient but are highly priced to reflect the repayment risks.
These facilities known as Retail or Consumer loans are not the kind of loans a business person needs. The amounts are usually small.
When a business loan or more structured loans are required, banks will demand for collateral other than BVN, access to borrower’s phone contacts or mere guarantors. Loans procured this way are cheaper because the risks are lower.
Even though the Central Bank of Nigeria has mandated banks to lend up to 50% of their total deposits at any given time, the customers are still asked to provide collateral. Yes! You must bring acceptable collateral otherwise, no deal. You may wonder why.
Do you know that loans banks give are part of the deposits their customers leave with them? In essence, banks have no money of their own to lend; they instead lend a percentage of the deposits left in their care by non-borrowing customers.
That is why the Central Bank of Nigeria (CBN) and National Deposit Insurance Corporation (NDIC) regulate how banks lend money in Nigeria.
They also punish bank owners and managers for lending carelessly by sacking the management team and taking over the banks.
Please note that it is illegal for a banker to advance a loan above N50, 000 to a customer without collateral.
In fact, all Nigerian banks’ credit policies prohibit lending a kobo to a bank customer without collateral though some “ndi isi ekwe ọnwụ” or risk-loving bankers still do it but are sacked when things go wrong.
All banks have even made it impossible for their officers to grant a loan to a customer by crediting their accounts without approval.
The banks’ computer software enabling loan disbursements are now controlled from the headquarters or regional offices.
Many bankers find a way to allow customers to overdraw their accounts without collateral; that does not make it normal.
Many branch managers pushed by the pressure to make a profit, circumvent this law by giving unauthorized overdrafts, especially in the market branches.
Because this model of lending is too risky, the borrower is charged very high-interest rates.
Remember, the higher the risk, the higher the returns to the lender. If the customer fails to repay the unauthorized overdraft and the law is applied, the banker will be jailed because the loan was given without collateral.
Therefore, savvy bank customers who intend to increase their capital through bank loans begin early to position their businesses by acquiring suitable assets they can pledge as collateral for bank loans, assuming that they have met all other loan criteria.
Borrowing from a bank is not an impromptu act like going to a convenience. Smart customers plan for it.
Most banks in Nigeria feel very comfortable with the landed property as collateral. So acquire one.
Note that land alone is not very acceptable until there is a building on it with an approved plan.
Undeveloped land is not usually sufficient for bankers because the government could repossess it. It has happened several times.
The property that will most certainly appeal to a lender must pass the following tests:
1. The property that can be easily sold off is the best suited for loan security. The whole idea is for the banker to sell off your property quickly if you cannot repay your loan.
The location of the property is critical. Those situated in city centres are the most appealing.
2. A property without a legal title (e.g. C of O or Deed of Assignment or Conveyance with governor’s consent) has no valid no title.
You should ensure that you obtain the relevant title on your land to enable you unlock the treasure it holds.
3. The property must have an approved building plan even though the land has a C of O. Governments had in the past demolished unapproved buildings; hence, reducing the value of the property.
You can get an approved plan even if you have already developed the land by paying penalties. Visit the ministry of lands to enquire.
4. Do not bury your dead relatives in the compound of the property you intend to use as a collateral.
A visible grave or tombstone inside the compound of a beautiful property has reduced that property’s commercial value.
What if the grave houses a notorious native doctor? Bury, your dead in another place. That is why the western world invented the cemetery.
5. The banker is not interested in the property in your village or town if it is not a city. He won’t accept a palace or property housing a shrine. He cannot easily sell those.
Small borrowers can also borrow against their fixed deposits and treasury bills. In a stable economy, shares of blue-chip companies can be used to secure a loan.
Please note that a bank can only lend you a maximum of 75% of the amount realizable when your property is sold in a hurry.
The possible price at which an uninterested person would buy your property because of the lowered price is called forced sale value (FSV).
This is usually about a 25-30% discount on the open market value (OMV) of your property.
Now that you know this, it is wise to use a portion of your profit to buy land in a city and build a house (even if it is a boys’ quarter) on it.
Then, ask an estate valuer to give you the market value and the property’s forced sale value. This will give you an idea of how much loan you can get from the bank.
Do not lead your banker into the temptation of lending to you without collateral. Stop inducing, tempting or seducing your bankers to break the law.
It is like doing something without protection. Do not do it to your dear banker.
Bank loans are for savvy customers to take and repay. Big businesses need bank facilities to flourish.
“I do not need a bank loan” is only for small, medium and conservatively large businesses yet to face crushing needs for funds.
The above is the secret of many successful businesspersons.
Now that you know it, do something today!
Chief Anayo Nwosu (Ojiakonaobi Nnewi) is a corporate and investment banker based in Lagos.
