How to prepare your business for a bank loan

Lets revisit this topic which we have treated in three parts in this column so far.

First, note that this column is focusing on business loan and not retail end loans that is gaining ground now usually called consumer loan.

I had noted in the previous part of this column that getting a loan from banks in Nigeria is not as difficult as most people think, especially those that have issues attempting to do so. The problem is largely that of huge communication gap (knowledge gap) between the lender and the borrower, than unavailability of loanable funds or unwillingness of banks to lend. Also it is not all about borrowers' shortcomings as has been overstretched in some quarters.

If only we note that banks have excess funds which are ready for lending and at same time the banks' are not ready to throw away depositors' money simply because somebody wants loan, the borrower-lender field would become even.

Below are some of the things one must have in mind before going for a bank loan:

First, the bank has a duty to protect itself or its depositors' funds from any loan that may go bad. Hence the bank will have to examine and appraise any credit facilities being requested properly after which the request may be granted or rejected.

On the other hand the prospective loan beneficiary has to be ready and 'on-point' regarding general and specific requirements before approaching a bank for loan. This is besides some basic conditions which I had outlined in the previous editions that must be met before a customer can apply for loan in the first instance, such as: Opening and operating of current account for about six months (some banks have relaxed this condition for small borrowers recently) which must be satisfactorily operated, i.e deposits and withdrawals must be reasonably stable and regular.

Other written and unwritten conditions some of which I had explained earlier editions include: The loan applicant should have unquestionable character and good health; Company registration details: Business Case for the loan, rationale behind it; Company Business Plan: Your business financial statements including an income statement, balance sheet and cash flow statement; Personal Statements of assets and liabilities of all the business partners, members of the Board of Directors (may not be required for small scale businesses) etc

Note, however, that a satisfactory presentation of all the above does not still qualify an application for loan to be granted automatically.

It is on this note I will crave your indulgence that we introduce new elements that were not in the earlier editions, especially in respect of security, popularly and erroneously known as collateral for the loan. Security can either be direct or indirect. Indirect security can appropriately be called collateral.

Security is direct when it is deposited by the customer to secure his own loan account, while collateral security is deposited by another person to secure a customer's account. For avoidance of misconception we focus on direct security.

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