Have you ever borrowed money? Or do you intend to borrow money in the near future? There are several considerations you must take especially if you are borrowing the money for consumption purposes. Actually, even if you are borrowing the money for business, this might not be an exception, so long as there is collateral at stake and you are not willing to lose it.
There could be a number of instances that you are turned down by the money lender or a bank, especially if you are a business person struggling with issues of liquidity or scaling up of your business. Financing, equity, liquidity, or whatever term you may use to mean the same, is a key issue in most of businesses. At the point of the quest for equity or a loan facility, we really need to ask ourselves as entrepreneurs, key important questions that deserve to be answered before an application for a facility is made.
One of them is your ability to pay back. This is not supposed to be answered by emotions because emotions don’t make any payment nor are they recognized in the courts of the law when things get sour. Such a question must be answered by numbers. Real financial numbers and documents like bank statements, profit and loss accounts, income statements, or cash-flow statements. At this point, there shouldn’t be any “ifs” or “buts”, because it has an ultimate implication on the success of the business or your personal progress at an individual level. This should be highly considered before even thinking about committing the collateral for the facility. Most times it’s for your own good that you are denied that loan facility. As you read this article/blog now, you could have lost your collateral because of your insistence to get that loan facility even when you have been told by another financial institution that you don’t qualify for the same. As business leaders, we are fond of jump-trotting from one bank to another, from one financial institution to another, because we have been denied a loan facility in the other. It’s important to first pay heed and sound attention to the reasons why the facility has been denied. Most times it’s for your own good, so take it in good faith and identify how else you can raise that equity or capital to start or scale up your business. Sometimes we don’t look around enough for equity before we opt for loans, even when the ventures we are starting are new. Genuine financial institutions rarely give loans on new businesses or pilot projects without any proof of concept because ideally you are literally selling that collateral but at a way lower price than the market price you could have sold it at.
Secondly, properly read loan application documents. We have had personal experiences and instances at Jonakee Holdings Limited, where a client tells you that they didn’t read the loan application documents and loan agreement when they were applying for the loan facility because they were under a lot of pressure from the supplier or the situation at hand. Meaning that, had there been any hidden clause intended to fleece the client, they wouldn’t have noticed. Thank God we don’t do that at Jonakee Holdings Limited, however, there could be a number of other financial institutions that do it, and the clients end up in hot soup! It’s a common practice with most borrowers. At the point of a loan application, the only thing a client is asking for is where to sign, but they don’t bother to read what they are signing. This is usually taken advantage of by some quark money lenders or financial institutions and they could smuggle in some clauses, that could lead to the loss of your collateral even when you are willing to pay. Businesses or even individuals most times have genuine issues or cash-flow challenges that were perhaps not anticipated at the time of loan application. It’s important that all options are weighed before foreclosure on the committed collateral. So, if paperwork is not properly read, it can cause issues not only for the lender but also for the borrower, especially if both parties are ignorant of the law. There is a proverb that ignorance is no defense, so when you get to court, that’s when you get to regret why you didn’t read, and most of the time it’s too late. This blog, therefore, is an eye-opener and it could guide you before you regret it.
This is the computation for the committed collateral, citing why, as a client, you should be careful! Take for example, your collateral is valued at UGX100m as a market sale value, the forced sale value of the same property could be UGX80m, thus, financial institutions vary on the percentage amount they give of the forced sale value amount. At Jonakee Holdings Limited, we give 50 percent of the forced sale value, but its also dependent on a number of factors including the clients’ cash flows, previous history, and probably if it’s the second time or third time the client is borrowing from us, but we rarely go beyond 60percent of the forced sale value. So that qualifies a client for a loan facility of a maximum of UGX48m! So, you can imagine, if your cash flows are not assessed well and your affordability of the loan facility is not ascertained, you are likely to lose your collateral at way-less value than you could have sold it. So, denying you a loan facility, it could be that the financial institution is legit but it’s also kind enough to tell you that you cannot yet afford that loan facility. Your insistence to go look for money from another financial institution is big exposure but also, its where non-legit financial institutions take advantage of the ignorance of the clients, and before the client knows it, they are losing their prime property over a little amount of money! I would rather you sell your “potential collateral” at market value or better still at forced sale value if the issue at hand needs to be addressed urgently.
Lastly, educate yourself before you borrow. Get someone who is playing in your industry and is doing very well, and learn from them as much as you can before you apply for a loan facility. It might look funny and as if I am de-marketing our industry but if you get to grow, Jonakee Holdings Limited will be able to support you at a higher level. We also need to make sure you keep in business for us as well to keep in business. It’s a symbiotic relationship. In BNI, we call it the “Giver’s Gain”, by giving you this information and of course, you making good use of it, which I can’t guarantee, ultimately benefits both of us. So go get someone, call him “mentor”, “coach”, “guide”, whatever, so long as they are good and knowledgeable about what you intend to do. Run away from theorists, who just read about things in books and have never even started a chapati stall. Such chaps will throw you into a ditch, which they have never even peeped into. Learn as much as you can from practical people and ones who can teach you from a practical point of view. They should be honest enough to share with you the original versions of their stories, not like motivational speakers who will tell you that they passed their exams by reading from the light produced by their father’s cigarettes. This you can only discern by instinct, or by guidance of the Holy Spirit. You can easily tell whether someone is telling the truth or not.
With that in mind, you will be able to get a loan facility that you qualify for, that you have the capacity to pay for, and above all, one that won’t put your committed collateral at risk of loss. Much of the time you have worked for this collateral for a while, even if not, you cannot afford to lose your valued property because of ignorance. Proverbs 4:7 reads Wisdom is a principal thing; therefore, get wisdom. And in all your getting, get understanding. Even if such learning costs you some money, which it usually does, it’s usually way cheaper than what is at stake in case you found yourself in a wrong transaction. The information given at a cost is very valuable to the recipient than the information got free of charge. So even if your coach or mentor offers to teach you free of charge, always offer to give them something, and it’s usually an honor to them. But it also indicates that you value their advice and they will get out of their way to guide you well and to accord you a good time, or else you might be treated as a by-the-way or secondary priority. I hope this blog was helpful. Do not forget to leave your feedback in the comment section. I’ll highly appreciate it.