Before You Apply For That Loan, Read This. (Part 1)

A lack of funds isn’t a valid reason to apply for a loan. I repeat, not having money is no reason to apply for a loan. As a business, or an individual, one should only apply for a loan when they do not have immediate access to the full amount needed; i.e.the funds are potentially available, but one is unable to access it immediately or all at once. Therefore they apply for a service that will grant them immediate access to the amount they need. Now we all know that accessing a loan isn’t free, you will end up paying for the convenience of this service, while also repaying the funds received in smaller, more affordable instalments. Which is why before a loan application is approved, the business will have had to demonstrate its capability to repay the loan based on its business’ potential growth and cash in-flows. (This is only applicable to business loans)

If you or your business have no potential of generating that amount of income or making that amount of money within the time frame that the loan is being offered, then you have no business applying for that loan.

That being said, do you know that there are over 15 companies in Nigeria right now that will issue you a no-collateral personal loan within 24 hours, right from your smartphone, without having to see or speak with you? Everyday, we hear about new fintech/lending solutions being funded and launched, making it much easier to gain access to “fast cash”. We have also seen an uptick in those WhatsApp broadcast messages informing you that a contact of yours either has a delinquent loan or has defaulted on their payments. Can the current state of Nigeria’s economy handle an increase in household debt?

“Household debt levels increased rapidly in many economies in the run-up to the 2007–2008 financial crisis, fuelled in part by easy credit and rising property prices.”

This quote is an excerpt from an article written in September 2017, by the Organization for Economic Cooperation and Development (OECD).

It is not the job of the lending organisations or agents to educate individuals on whether or not they need loans, their job is to disburse loans and receive their repayments. Understand that there are many differences between business loans and personal loans, but there are 3 very important differences we would like you to note below:

• Typically, business loans have a longer payback period than personal loans
• Business loans usually have lower interest rates, when compared with personal loans.
• Lastly, the amounts offered as personal loans are usually lower than those offered to businesses.

What these differences should tell you is that even lenders understand that personal loans are riskier than business loans. However, the current market makes it much easier to access a personal loan than it does to access a business loan (this topic will be discussed in a future post).
Before you consider applying for a personal or business loan, you should have answers to the questions below:

• Can I or my business make this amount of money or generate this amount of income?
• How long will it take me or my business to make this amount of money or generate this amount of income?

It is one thing to have nothing, it is another thing to have nothing and owe a lot, plus interest.