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Understanding Bank Lending - Business (1) - Nairaland

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Explaining The New Bank Charges, Lending And Deposit Rates Announced By The CBN / Understanding The Basic Principle Of Generating Income Online / Bank of industry Increases On-lending Fund For SMEs Under YES Scheme (1) (2) (3) (4)

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Re: Understanding Bank Lending by amicable09(f): 8:09pm On Dec 07
christok1:


No, just take amicable's savings and give to Kabiru, and it continues that way.
Lol. I sense you know more about this on a deeper level but I hope you understand the process flow well enough cheesy. It goes beyond money changing hands, that's why we have treasury department.
Re: Understanding Bank Lending by amicable09(f): 8:12pm On Dec 07
jerryadigun:


Yes please. It's personal and I would appreciate any other alternative.

Thanks.
OK, message me. I'll request for password reset or something tomorrow or Saturday.
Re: Understanding Bank Lending by Krafty006: 9:10pm On Dec 07
I don't like bank loans......I will rather source funds from friends/ relatives

1 Like

Re: Understanding Bank Lending by LyfeJennings(m): 9:31pm On Dec 07
amicable09:

True, however, things have changed. We've seen that some who even pledged collaterals back in those years offered non-realizable collateral. For instance, presenting third party collaterals and one village Igwe's palace and all. Those properties if push comes to shove and the bank is set to sell, trading it off becomes an issue.

These days banks are wiser and risk management is requesting for collateral cover of at least 140%. This way the disastrous effect if anything should go wrong would have been watered down a bit.

Thanks for sharing in our sentiment.

Having a security that covers at least 150% still doesn't change anything. I can easily get 2 other banks on that same security with the help of a trustee and the bank can't object to them

2 Likes

Re: Understanding Bank Lending by GreatManBee: 9:49pm On Dec 07
amicable09:

True, however, things have changed. We've seen that some who even pledged collaterals back in those years offered non-realizable collateral. For instance, presenting third party collaterals and one village Igwe's palace and all. Those properties if push comes to shove and the bank is set to sell, trading it off becomes an issue.

These days banks are wiser and risk management is requesting for collateral cover of at least 140%. This way the disastrous effect if anything should go wrong would have been watered down a bit.

Thanks for sharing in our sentiment.
So then why does banks charge neck breaking interest rates about 25% when you take a loan from them? This is one major discouragement.
Re: Understanding Bank Lending by GreatManBee: 10:07pm On Dec 07
Very true.
nams77:
I laughed hard when I saw your post. Many persons don't understand that banking is a risky business. A lady approached me a while ago. She wanted financing for an LPO. I told her the company that issued the LPO is not among companies and establishments we deal with. Not that the company is bad. I took her to a microfinance Bank to see a friend there. She was asked if she has any properties that is worth 24M? She said ah ah, she will do the supply and return the money na bla bla bla... I told her it doesn't work that way. Anything can happen to the company and they may not be able to pay for your supplied goods, so what happens to the bank (depositors) money
The saving grace for entrepreneurs in America is that they have venture capitalists (firms) that sponsors ideas. That was the saving grace for most of this dot.com organizations in America

1 Like

Re: Understanding Bank Lending by amicable09(f): 10:17pm On Dec 07
LyfeJennings:


Having a security that covers at least 150% still doesn't change anything. I can easily get 2 other banks on that same security with the help of a trustee and the bank can't object to them
Nah! I beg to disagree.

Before now, a bank I know used to accept personal and corporate guarantees as part of security but now they don't. Forget the whole third party thing, I personally won't accept third party collateral. It's as simple as that. Your trustees notarized statement of net worth sef is nothing.

You must at the very least provide adequate collateral cover before you can drawdown.
Re: Understanding Bank Lending by amicable09(f): 10:25pm On Dec 07
TheDokita:
I really need to learn more about bank loans
It's quite interesting. You can read up or ask questions.
Re: Understanding Bank Lending by Mabpaine(m): 10:33pm On Dec 07
Help a brother, what is LPO?
Re: Understanding Bank Lending by chloride6: 10:56pm On Dec 07
GreatManBee:

So then why does banks charge neck breaking interest rates about 25% when you take a loan from them? This is one major discouragement.

It's not really the banks fault. The CBN specifies what is known as the base rate. As I write, it is at 14%. This is the minimum rate that banks can lend anyone funds. Banks add their operational cost, pay their taxes and stil have to tidy a profit.

The result is that 25%

1 Like

Re: Understanding Bank Lending by amicable09(f): 10:58pm On Dec 07
GreatManBee:

So then why does banks charge neck breaking interest rates about 25% when you take a loan from them? This is one major discouragement.
For different reasons my friend. Before I continue, let me inform you that interest rates are negotiable. No two facilities are priced the same. What we have is what we can't do below and above like nobody should charge you above 30% for any facility.

That said, interest rates pegged at 25% is usually for corporate customers not retail customer however, it's not as though it is as low as 10-15% and that's because the funds we receive most of the time are high priced. Take for instance, a customer gives us a 100 million naira deposit for 90 days at 18%. You want 100 million naira for 90 days too, what do you advice we charge?

You'll pay management fee. Maintenance fee. small small 1% or 0.50% fee like that so that we too earn small thing on it. You get? cheesy

That's just how it is. If the funds were free like intervention funds and so on, the interest rate won't be high at all.

1 Like

Re: Understanding Bank Lending by Follysho707: 11:09pm On Dec 07
SHARKS !!! Avoid them, they're never after your interest! Debt is a great leverage form but, commercial banks simply take advantage of the lower mid-class/ middle-class. Trust me, I know this well enough. undecided
Re: Understanding Bank Lending by free2ryhme: 11:44pm On Dec 07
Nevee:
Quite enlightening. So many opportunities exist in our Financial system. That's one place your money can sweat for you and make returns even while you are sleeping (and probably snoring) on your bed. But the information gap is just too wide.

I still feel if the general public have a proper knowledge of some of these opportunities, I doubt they would still be leaving their money lying fallow in commercial banks.

Stories in the past from previous investment deals had made it difficult to trust bank to invest for your money.

It is better for the money to remain where one can access than to get into an investment turn sour then banker will be speaking spanish or Latin and using almighty formulae and pythagoras theorem to explain why you can never get you money back.

Meanwhile banker has pocket his own share from the failed investment leaving you burnt

1 Like

Re: Understanding Bank Lending by MT: 11:48pm On Dec 07
I am more interested in the risk management process that banks undertake. It seems straight jacket to me.....to me it is just about looking for the worth of collateral that matches the loan being sourced . That sounds so simplistic. Trying to determine if a bank should finance a business idea in a country like Nigeria that lacks empirical , reliable data can not be considered as part of the risk management process. I stand to be corrected if you do have a contrary opinion.

Another thing is not every one can produce physical collateral. Why cant bank evolve a kind of credit rating as obtainable abroad where loan can be given without necessarily asking for physical collateral ?. And we all know that once the credit rating is ruined, the person wont be eligible to any credit from any banks again.

Then i am certain the high interest rate charged on the loan will kill the business faster than the loan itself. Just my 2 cents.

1 Like

Re: Understanding Bank Lending by Apollux(m): 11:59pm On Dec 07
amicable09:
Understanding Bank Lending is inspired by a conversation/chat I had yesterday with a friend. It might benefit the general public so I thought to share.

More to come...
*******************************************
Some minutes past 10am yesterday, a friend from school who studied Theatre Arts and is currently in the movie industry featuring in epic films and slowly rising as an upcoming star actor called me to request for my bank's partnership with him for a movie he's planning on shooting.

Bank, partner with an individual cheesy? An individual who hasn't registered his company name with Corporate Affairs Commission (CAC). A young graduate in his 20s who is still trying to find his feet in the entertainment industry wants us to fully sponsor his film project. That's funny. I told him to chat me up as the conversation was going to be a long one. Then we began.

I decided to share the history of that chat here because there are a lot of people complaining that Banks don't encourage SMEs, banks don't encourage entrepreneurs, banks don't give loans to retail customers and so on. Not quite true. I'll explain why.

When you accost your account officer or walk into any of your bank's branches on a beautiful day after returning from your dreamworld, you are full of ideas, so much fire in your bones, very optimistic about your dream of being your own boss and an employer of labour but you need to understand what we see when we listen to your big dreams.

The loan/overdraft/import financing/LPO or whatever it is you're requesting for when you approach your bank will come at a cost. Why? Because banks don't print money. We take from areas of surplus (depositors) and give to areas of deficit/want/need (borrowers). This is a huge risk. A very risky business for banks because anything can happen to the individual borrower the next minute. He might die. His warehouse might be razed down after financing the stock in his warehouse. Or on the brighter side, he can go on a vacation to an island with his family and enjoy there till eternity.

Depositors money comes at a cost (interest accrual) to the bank. When we take Kabiru's savings and give to Michael for business and Kabiru walks into the bank the next day to request for his money, what do we do? Tell him we don't have his money anymore? If we try that there will be a run on our banks across all states. People trooping into our banking halls or using their mobile phones from the comfort of their homes to transfer their funds and we don't want that.

Yet, we are in business to serve customers. To offer financial intermediary services so we have no excuse you'll say. I agree with you but overtime banks have had their hands badly burnt therefore we need to apply caution as we discharge one of our primary responsibilities to our customers.

And what is that?

COMFORT

What comfort or collateral have you when you approach your bank. Please don't tell me you have a ready market with buyers waiting in line for your product like my friend told me. If it be so, why don't you leverage on spontaneous financing? The proposed buyers can actually pay in advance as they eagerly await your production. That way, you have money to produce or you can approach the bank with that deposit and it can be accepted as collaterized deposit. That is one form of comfort for the bank. At least, the facility will be cash-backed. No shaking.

Again, we ask to see previous works you've done in the past and you tell us you haven't done anything before but you believe so much in yourself that you want the bank to use your confession as bond. It doesn't work that way. No track record. No past successes to reference and you want your first project to be a block buster. Things don't work that way. Start with the little you have. Do small things first and show us the results. From the antecedents, we can be better prepared to offer financial assistance with your promise to pay back.

I asked my friend who is requesting for bank loan how he intends to pay back and his response was as expected, filled with high hopes. "Local movie houses will buy the movie once it's out. In fact, marketers in Alaba and Onitsha are already on ground. I've spoken with them".

Can you see the dilemma we find ourselves? I'm happy he has their commitments but is there a legal agreement, a partnership deed to close this deal? None! How sure are we that after producing a high budget movie it will not be underpriced? Have you taken into cognizance the commercial side of this project? He responded in the negative but insisted that he has it all figured out!

If it doesn't go as planned, what should the bank fall back on?

He said it will go as planned.

Sometimes, your optimism is not what makes a project work, your understanding and preparedness for failure produces success.

Questions and Reactions are welcome cheesy
My friend is like the hundreds of thousands of youths out there looking for a way to hit it big from the start.

Take it slow guys...

Your bank is here to serve you. Trust us to deliver.
Nice write one OP, from your write up I can guess you are in the banking industry. Hope you don't mind if I ask that you throw a little light on the risk management in collateral warehousing when a bank is involved in the financing.

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Re: Understanding Bank Lending by Rainmaker69(m): 12:34am On Dec 08
An interesting read, although it seems you may not have answered his question. There are many ways a bank can partner with such an endeavor.Unless the partnership your friend referred to meant strictly a loan (in that case, he should run far because commercial banks in Nigeria are a liability to the creative sector).
In reality, banks actually make money under our current financial system. Its a little complicated but imagine that with only 1m in cash, a bank can give out 10 facilities of 1m each. The credit alert into the customer's account with the bank is merely an electronic iou. By the time charges and fees are deducted, the real figure has been discounted. Then the bank informs you that although your account has been credited, the money can only be withdrawn in tranches of 100k, and you are required to service the interest before paying back the principal... The bank has created debt-value from thin air.

3 Likes 1 Share

Re: Understanding Bank Lending by JazzMode: 12:53am On Dec 08
Nice one!

1 Like

Re: Understanding Bank Lending by InvertedHammer: 1:25am On Dec 08
If a stranger walks into your office with a beautiful story, will you lend him/her some money? You will start thinking of 419.

Replace yourself with a bank.

Some people cannot even collect loans to friends and family members they have known for years. But now we are talking about perfect strangers.

/

3 Likes

Re: Understanding Bank Lending by babaskool(m): 4:59am On Dec 08
Please can anyone on here help me with the details of the loan provided by the central bank where the collateral is ones original copy of their degree certificate. I need details as to how to get started and how and when to apply
Re: Understanding Bank Lending by dayod247(m): 5:56am On Dec 08
So much talk talk talk. I'm sorry I'm among those people who are really bitter/angry with banks. I have carefully gone through the article.

Banks can't epp!!!!! Maybe in the past they were, but right now!!! Nahhh. They are all looking for business themselves, looking for one individual who is already established to scam!!!

My advice, never deal with bank: it's better you just raise money through cooperatives societies, it might be slow but at least you know you are save to some extent and no bank will come and steal your idea.

Moreover, how do you expect an employed bank staff earning say 300k monthly, who has no skills and can be sacked anytime, he can never see where you are coming from when you go to him with an idea, they will only see their own job security... I don't blame them... na Nigeria cause am. They now say they are doing SME's... nonsense!!!! They will rather help a big politician or the likes of dangote that has incurred so much debt.

So finally you raise the money and business starts making sense, you register the company and then you decide to open a cooperate account. First of all the form is too long, then they say they will do some verification which you will pay money for. The annoying part now is that they will be charging a certain ridiculous amount on every 1000 naira you exchange through the account... and the bank did absolutely nothing to help at the start of the business, yet they want to eat out of it.

My point is, majority of those bank guys can't understand your idea, therefore they can't see any light anywhere. They only know how to balance account... which is actually their primary job. If the account doesn't balance then it cannot work...

Entrepreneurs need to think outside the box. Thank God for the foundations coming to our aid these days. God bless you guys.

1 Like 1 Share

Re: Understanding Bank Lending by 44chux(m): 6:23am On Dec 08
kay29000:
Nice one. I used to hate banks as a man with many dreams in the past and not being able to get a loan, but now I understand better. Banks would rather take the risk with established business men or investors, and I don't blame them.

If you are just starting out, it's best you try to get a loan from friends, family members, or fans/admirers of your works.
I'd rather give the funds to Motherless-Babies' homes or to Rotary Intl than a loan to friends & family!

That's the fastest way to spoil a valuable friendship!
Will encourage laziness, comfort craving & dependance in family!

1 Like

Re: Understanding Bank Lending by stuffs4me(m): 6:31am On Dec 08
otunbadan:
What the op wrote is very true, however, the banks in Nigeria are zero percent interested in giving small business any form of insight into helping them grow. Even when you don't need loans or any form of financing, as a financial institution, they are to help guide business owners, here in Nigeria, the bankers are not trained as bankers at all.

Once they see you have big balances, they send their marketers to cling to you like a leach, just interested in growing their targets and not ever interested in if your business makes it to the next day.

Due to minor temporary cash flow issues like when dollar spiked out of control last year, causing price of my inputs to sky rocket.. those big balances went low for a period of time... even asking customer care a question inside the bank, you appear as a nuisance.

The OP conveniently forgot to respond to this post. That's what a typical banker would do anyway.

You might also want to respond to dayod247's post


cc amicable09

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Re: Understanding Bank Lending by Welder(m): 6:32am On Dec 08
Mabpaine:
Help a brother, what is LPO?
Local Purchase Order. It is some order for certain goods, usually from multinationals. The contractor can engage a bank with LPO who will in turn finance the LPO whilst ensuring that necessary cover like verification of the LPO is done, payments shall be routed through the bank etc

1 Like

Re: Understanding Bank Lending by doenut(m): 6:44am On Dec 08
Are you a startup or growing business?

Do you possess the next breakthrough idea, business solution or technology but struggling to get investment?

Talk to us at Accelera8tor.

Funds available for business growth in exchange for equity and mentoring.

Contact privately if interested.

Thanks
Re: Understanding Bank Lending by Lincolnburrows(m): 7:05am On Dec 08
Igyeseh:
Can bank accept degree and NYSC certificates as collateral for a loan of six months, to be paid with any interest rate of the bank choice?
A very business opportunity is shining right here but no means to finance it.
You must wait for a bank. Why not go into a partnership with someone. I will be willing to listen to your ideas.
Re: Understanding Bank Lending by amicable09(f): 7:11am On Dec 08
stuffs4me:


The OP conveniently forgot to respond to this post. That's what a typical banker would do anyway.

You might also want to respond to dayod247's post


cc amicable09
Lol. I didn't conveniently leave out his post. I was not directly mentioned and most responses were done in between work so you understand it's never convenient whichever way you look at it. I'll try to respond anyway.

You bolded the part where he talked about banks not offering businesses other forms of assistance and most bankers not trained as bankers, I'll still find time to take his post bit by bit so I don't miss out on anything.

The bank is an institution not one person just the same way government is. Your account officer should be armed with requisite knowledge to help you. I don't expect a teller to advise you on investments neither do I expect that you'll rely on customer service officers for the latest CBN intervention fund available. Their knowledge won't be indepth and that's not because they are not trained but their training focus is not in those areas.

I know for a fact that every year, we are mandated to take some online courses as directed by CBN and that's because it is a subject that concerns all. Staff training is on need basis and my training will be different from a teller's training because I don't post transactions so overage and shortages won't concern me, it's at the surface level I can only speak about those issues.

2 Likes

Re: Understanding Bank Lending by Mabpaine(m): 7:16am On Dec 08
Welder:

Local Purchase Order. It is some order for certain goods, usually from multinationals. The contractor can engage a bank with LPO who will in turn finance the LPO whilst ensuring that necessary cover like verification of the LPO is done, payments shall be routed through the bank etc
thank u for d enlightenment. I appreciate
Re: Understanding Bank Lending by amicable09(f): 7:26am On Dec 08
Rainmaker69:
An interesting read, although it seems you may not have answered his question. There are many ways a bank can partner with such an endeavor.Unless the partnership your friend referred to meant strictly a loan (in that case, he should run far because commercial banks in Nigeria are a liability to the creative sector).
In reality, banks actually make money under our current financial system. Its a little complicated but imagine that with only 1m in cash, a bank can give out 10 facilities of 1m each. The credit alert into the customer's account with the bank is merely an electronic iou. By the time charges and fees are deducted, the real figure has been discounted. Then the bank informs you that although your account has been credited, the money can only be withdrawn in tranches of 100k, and you are required to service the interest before paying back the principal... The bank has created debt-value from thin air.
I agree with you on the electronic IOU system you mentioned but saying the money can only be withdrawn in tranches of 100k after crediting customer's account with 1mn is dependent on the facility structure. We can disburse 1mn at once and we can disburse also in tranches, you should look at the dynamics of the transaction, very important! that's what informs disbursement.

And servicing the interest before paying back the principal is the bank giving the customer moratorium on principal which is not a bad thing. Like I said before , no two credits are the same. When I look at a customer's cash flow, I see different things, and my calculations are very different from the borrower's calculations. Our thinking different as well. So, if from a borrower's cash flow I deduce that he won't be able to service the principal portion of the loan from the first month, it's only wise I give him that 'grace' . It is called moratorium. That's all. It makes business sense.
Re: Understanding Bank Lending by amicable09(f): 7:50am On Dec 08
dayod247:
So much talk talk talk. I'm sorry I'm among those people who are really bitter/angry with banks. I have carefully gone through the article.
I can feel your anger straight from here. I'm sorry about it. Thanks for going through the post carefully.

Banks can't epp!!!!! Maybe in the past they were, but right now!!! Nahhh. They are all looking for business themselves, looking for one individual who is already established to scam!!!
We are yes looking for business as well but not for individuals to scam. We get scammed too. I'm going to respond to someone who asked about warehousing facility later on. One of our customers set his warehouse ablaze because he wanted to play smart. We have seen different things. Even banks cry.

My advice, never deal with bank: it's better you just raise money through cooperatives societies, it might be slow but at least you know you are save to some extent and no bank will come and steal your idea.
Never deal with bank cheesy That's not a very good advice. For those who can, raise money through cooperatives, I concur. Wait o! Bank steal your idea? Lol. That's a joke right? If your idea is to start up a printing press business inside UNILAG, is that the one bank will steal? cheesy... Nah. Banks don't steal business ideas. I'm yet to see a bank that has a poultry farm or another of such business.

In fact, for our corporate customers with very big business ideas, before they start discussing their business with us and their vision, we sign a Non Disclosure Agreement with them first. That's the bedrock of trust. So relax! There's no business idea that is peculiar to one brain alone. Trust me. It's all about innovation.

Moreover, how do you expect an employed bank staff earning say 300k monthly, who has no skills and can be sacked anytime, he can never see where you are coming from when you go to him with an idea, they will only see their own job security... I don't blame them... na Nigeria cause am. They now say they are doing SME's... nonsense!!!! They will rather help a big politician or the likes of dangote that has incurred so much debt.
Lol. I take this as an insult though. You mean bankers don't have any skill!? Bro, check yourself o.

So finally you raise the money and business starts making sense, you register the company and then you decide to open a cooperate account. First of all the form is too long, then they say they will do some verification which you will pay money for. The annoying part now is that they will be charging a certain ridiculous amount on every 1000 naira you exchange through the account... and the bank did absolutely nothing to help at the start of the business, yet they want to eat out of it.
Uncle, ask for concessions. We give concessionary rate approval to corporate customers who ask for it. The verification we do is simply legal search and it is for a paltry sum. And your reasoning is funny. We want to eat from it bawo. Are we your village people?

My point is, majority of those bank guys can't understand your idea, therefore they can't see any light anywhere. They only know how to balance account... which is actually their primary job. If the account doesn't balance then it cannot work...

Entrepreneurs need to think outside the box. Thank God for the foundations coming to our aid these days. God bless you guys.

SMH. Your point is flawed. Leave me in my department for 10 years and I won't balance one account.

1 Like

Re: Understanding Bank Lending by jerryadigun: 8:03am On Dec 08
amicable09:

OK, message me. I'll request for password reset or something tomorrow or Saturday.

Thank you.

1 Like

Re: Understanding Bank Lending by govmentson(m): 8:42am On Dec 08
I think the interest rate to service the loan is too high..how do u expect an SME to make such profit and pay
Re: Understanding Bank Lending by bass7: 9:31am On Dec 08
op, your write up is really educating, I must say I learnt something from it.

To those that think/believe that banks are scammers or are not useful, you have to desist from such feelings because the truth is that when you apply the right moves, ideas etc...... you will be served well by the bank.

There's no free food in Freetown

just my own 1 cent..

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