Ugo (Owner of Ugometrics Business Blog) is back!  Here him:

Ugodre: Every now and then I meet people howling about their debt burden and how it's making life difficult for them. Some of the loans are consumer loans used to buy a car, finance a pet project or even pay for house rent. I have always believed that your loan repayment per month should never be more than 40% of your salary or monthly income. Anything more than that sets you on the path of financial crisis as the risk of default is mostly higher. But how then does one get out of financial crisis related to the burden of loans? I will attempt to give tips. As usual we will depict a real life situation for better guidance

Example: Wale decided it was time to take a loan since landing his new job in 2009. He borrows N2.6m to buy a tokunbo car and the balance to pay for a new 3 bedroom apartment he just moved to. He earns a take home salary of N200k a month and currently pays N80k to the bank as loan. He also spends on average N80k monthly in living expenses such as feeding, transportation, wardrobe, entertainment etc. leaving him with N40k as savings. Suddenly his company faces a financial situation and decide to slash salaries and cut staff strength. Fortunately or unfortunately Wale is not sacked but told to take a pay cut of N60k dropping his monthly take home pay to N140. He suddenly finds himself in deep financial waters as his loan repayment is now more than half his take home pay. He currently owes the bank N1.3m (excluding future interest) after paying back half of the loan which was about N3.8b (including principal of N2.6m and interest). Since taking his pay cut in November 2010 he has defaulted twice in repaying his loan as his expenses almost doubled after getting married. The banks have written him severally and have now decided to act. What should Wale do?

Step 1: Don't be afraid and never get depressed. In a capitalist society even the richest of men owe. In fact they owe billions and are often soothed rather than chastised when the bank man comes. The main reason for this is that no bank wants litigation (even if the outcome will favour them). So, as much as you are in deep financial mess they also are. In Nigeria, banks tend to fire small loan borrowers with also sort of threatening letters, like warning that they will write your employers, seize your car or any other collateralized assets etc. At the end of the day, an amicable solution is always better preferred.

Step 2. Ask yourself the honest question: Can I sustain this lifestyle? Should I sell my Car to repay part of the loan? How much can I really repay the bank within the current circumstances? All I really need to do is either repay the loan out-rightly, get a new job or simply just reduce the amount I pay the bank monthly. The following steps will be based on my decision to reduce the amount I pay to the bank monthly.

Step 3. How much can I possibly pay the bank now? When Wale was taking home N200k he was paying N80k as loan or 40% of net income. Tu remain at 40% of that figure, he will need to pay the bank N56k monthly leaving him with N84k. Since he is newly married he believes he needs at least N100k monthly to meet up with the demands of marriage even if it means him not saving. Therefore, the needs to pay the bank N40k monthly, that is half his original pay.

[b]Step 4. Now that you have decided how much you can afford to pay the bank, the next step is to determine what that means in the overall context of the loan. [/b]If you owe N1.3m and you wish to repay N40k monthly at an interest rate of 20% then the no of years you are looking to complete the loan will now be 4 years or 47months. What this essentially means is that the loan which was to last 4 years will now extend to 6years. Remember Wale had paid for 2 year and had 2 left and to accommodate his N40k repayment, he needs to add two more years. This move whilst a cash flow relief will bring additional interest cost almost 100% of the loan value at the end of the payment. You could also decide to adopt a progressive repayment rather than a uniform one. That is pay N40k for the first year and N60k the next and N80k till the loan is liquidated. This method does the twin job of giving you temporal relief while anticipating an improved cash flow and also helping contain the high interest cost associated with longer tenors.

Step 5: Approach your bank - Never get shy about telling your bankers your financial predicaments. Remember your success/failures is directly proportionate to theirs so its always in their best interest when you show intent to repay their loans. Set up a meeting with them at a place of your convenience, make sure its a discussion over lunch or drinks as that creates a friendly environment. Tell them your plans in the clearest form and give an impression its a honest and well thought out now. Make them understand its a win win situation and actually benefits the bank more as they get more cash flow. Don't be ashamed to tell them you just got a pay cut and as such don't have a choice but to do this. Even if you never had a pay cut but just have financial constraints, make them understand what your predicaments are and how a restructuring of the loan is the best option. They may come with their own proposals for a way out which may or may not be better than yours. Whatever the case just remember than your guiding principle is the cash available to you after you debt service.

Step 6: Forward an official letter to the bank: After you must have concluded negotiations with your account officers, you should now write them officially requesting for a restructuring of the loan. The tone of the letter can look like this. The response time for banks typically varies depending on the efficiency of their operations. Based on that it is often advisable that you follow up from time to time especially via emails. Emails are good record keepers as such is mostly preferred as a communication took.

Step 7: Post Restructuring: Once your offer has been approved, the bank will give you a restructured facility with terms and conditions. Make all efforts to read the fine prints as banks notoriously embed details in it. Ensure you look out for the following
I. Tenor - Make sure its the number of years/months you agreed with the bank
II. Interest Rate - Always check interest rates especially if they are tied to benchmarks. Sometimes they tell you its "subject to market conditions" or "MPR plus 12%". Whatever the case, they are simply telling you interest rates can go up (hardly down). Make sure your offer rates are competitive. To make sure, consult your accountant or friends in other banks.
III. Fees - Fees are often over looked when it comes to loans, whereas they are also a cost. When you are restructuring, the banks typically will charge you a "restructuring fee", "management fee" and facility fee". Restructuring Fee is a one off payment and can range from 0.25% to 1% of the loan. Always negotiate for 0.25% or even zero. It is possible if you make them understand you can't afford it. Management Fees are paid every year and is a flat percentage of the outstanding principal. They can tell you it is 1% of the Loan or 0.5%. Facility Fee is also similar to the restructuring fee. However, this is mostly charged for a new loan. Whatever the case strive for a total Fee that will NOT cost you more than 0.5% per annum.
IV. Security - Make sure the security (collateral) they are asking for is what you agreed with them during negotiations.
V. Caveats - There are usually loads of clauses and caveats that are found under "Other Conditions". It can be burdensome to read but since its your butt on the line, I suggest you read them. Particularly the clause that refers to early repayment. Some banks charge you if you decide to repay all or part of the loan before it is due. Make sure this clause says "you will not be charged for early repayment of all or part of the facility". Who know, you might land a lucrative job and decide to pay off the loan.

Step 8 - Sign a copy of the offer and keep an original as well (with the signature of the representatives of the bank).

Step 9 - Start to look for another job or find away to improve your financial situation. Even with the relatively affordable cash payment Wale has to make, he still has less disposable income available to him. As such a debt burden is something he needs to get out of his life. That will only be put to bed by an improved stream of cash flow.

Conclusion - Whilst these are basic steps to guide you, it is advisable that you consult Accountants, Lawyers when negotiating with a bank. Never be afraid to negotiate your way out of the pains of debt. Be smart and think rich

Source: http://www.ugometrics.com/2012/01/how-to-negotiate-out-of-bad-loan.html

Its simple. PROTEST!

Bro you are still talking of loan when the whole house is on fire. Sorry no more loan. The only loan available right now is bread and beans with pure water to chop in the morning at ojota park before heading to occupy Nigeria protest.

^^^

Tell him for me

Nice write up. Restructuring loan is not a difficult issue as long as you show willingness to pay and your situation is far from bankruptcy.  No matter what, the guy ll have to remove the subsidy that make him spend 100k monthly and use the savings for some investment which overtime may supplement his earnings.

nice write up

Nice one

It should be how to subsidize a bad loan. Or go teach Okonji and Badluck how to renegotiate with IMF

Imagine write-up. People still dey collect loan at this time and age?

To do what? BUY CAR? RENT HOUSE? Not even invest in business?

CRAZY!

Simple. No need for the post. Just go into the bank and tell them you are going to be a bad customer on your loan repayment. They would offer you many options available like refinancing or restructuring the loans .

It is always good when you obtain a loan to expand your business.
Using loan for luxury will land you in mess at the end of the day.

Nice write up.AMCON and banks should give debtors minimum 7years to restructure
bad loans.

Seun,

Take a look at this case below; I posted it in the business section a few days ago. Kindly help push this case as all effort to get help has been frustrated. Even though CBN asked that Diamond Bank plc pay back the money, their behaviour is nothing to write home about. See text below;


15th April, 2011

Head, Public Complaints
Cooperate Secretariat
Central Bank of Nigeria (CBN)
Headquarters
Abuja.

Dear Sir/Madam
PETITION CONCERNING A BREACH OF AGREEMENT BETWEEN ANGEL’SEYE NIGERIA LIMITED AND DIAMOND BANK PLC

We are a limited liability company in Nigeria; we operate a current account with Diamond Bank Plc
Account Name: ANGEL’SEYE NIGERIA LIMITED
Account No: 1302350000044

On the 28thof May 2009, the Bank offered us a term loan referred to as working capital facility (Diamond SME loan) for the sum of One million naira (=N= 1,000,000.00)

Due to unforeseen circumstances, we asked for a restructuring and it was approved having met the stipulated conditions by the bank. The duly approved restructured agreement took effect from the 22nd of October 2010.

This for us was exciting and we had no excuse not to meet up with the new plan where we were expected to pay the sum of Ninety Three Thousand Nine Hundred and Twenty three Naira twenty three Kobo (=N= 93,923.23) monthly.

For the restructuring to take effect, there were charges which were debited directly and when we asked, they told us that it is a new facility. The charges are as follows
1. Management fee
2. Legal fee
3. Commitment fee
4. Restructuring fee
5. =N= 2000.00 for notarization court (paid in cash)
6. Provision of a surety

All these we met adequately







The Bank had assured us that our account would run normally as long as we made allowance for the monthly loan pay back.
Angel’seye Nigeria Limited has four different accounts in four different Banks; but due to the nature of agreement we had, respect for the legal system, trust in the integrity of the bank and its staff
we paid in a cheque to the Bank with the hope that they would take what was due to them for that month and we on our own part could go ahead with our plans in meeting our obligations. We paid
(=N= 1,275,000.00) on the 8th December, 2010 which was meant for the December payback and the running of our business.

However to our surprise, our business partners who we issued cheques to came back saying there was no money and some of the cheques paid into the account were not honoured. We rushed to the Bank and discovered that the cheque we paid in had been collapsed into the facility. When we asked them they could not say anything apart from `It was beyond us’.

The questions that came to mind were:
i) Why did the bank go through all these process if they knew they would not respect it?
ii) Should we not be informed not to issue cheques since the whole money had been paid down; we know that issuance of dud cheque is criminal offence.
iii) Why the court notarization of the transaction if it did not matter?
iv) What was the essence of the surety we were asked to provide?
v) Was the restructuring of the loan not approved?

We could have paid the cheque into another Bank and given the Bank the =N= 93,923.23k which was
the required monthly repayment if we had any ulterior motive. We thought the bank would honour the
agreement in keeping with its Hallmark of integrity .

The bank’s action has caused us a great financial loss and dwindled our transactions in these ways:
• Unnecessary hardship
• Defamation of character
• Loss of integrity amongst clients and staff
• Criminalization of genuine actions
• Distortion of business plan.
All our correspondence to the Bank were through our Lawyers.
Please find attached hereto, all relevant documents relating to the matter:

1. Letters between us and the Bank
2. The facility letter
3. The letter of restructuring of the loan
4. Statement of Account.
5. Letters from the Bank
6. Copies of dishonored cheques
7. Copy of Bank teller lodgment into the Account
8. Letter from our solicitors to the Bank.

We had written the Bank several times. Some of the letters were responded to and others completely
ignored. Our intention was to go to court but when we heard of the CBN Committee we decided to
approach the committee for justice since CBN regulates Banking and financial polices. We are also
aware of the position of CBN on Banking Operations.




OUR PRAYERS
Angel’seye Nigeria Limited has suffered untold hardship as a result of this breach of contract by
Diamond Bank. It is therefore our prayer that CBN should intervene in the following ways:

* Compel Diamond Bank Plc to pay damages to the company in the sum of Thirty Million Naira Only (=N=30,000,000.00).
* Compel the bank to issue a letter of apology to Angel’seye Nigeria Limited for the breach of contract agreement.


Thanking you ahead for your co- operation and assistance in getting justice in this matter.

Yours faithfully



ADEYEMI OSOBA
For: ANGEL’SEYE NIGERIA LIMITED.

Pls go to court while pursuing the CBN option. Though the court may take a much longer time, but if you have a good lawer, you will make a hell of millions out of them. Pls get ur documentations perfect, tight and safe. All documents they signed and urs too. Best of luck!

No, don't go to court yet,
wait for the response of the CBN.
If CBN cannot resolve the matter amicably, then you can proceed to court for redress.

I always advice any enterpreneur who wants to succeed should not solely depend on bank loan.
Even if you're going to take any loan facility from bank, be sure that you have a way of paying bank and that you will use that money judiciously.
Banks gives money with 1 hand and collect back with 2 hands. They are not your parter in progress, they are just doing their own business.

I dont like burrowing esp. 4rm Nigerian banks; they are business killers

I jst went to my bank (FCMB) today jst to find out how they can support my business

they were saying 23% plus other so called services charges.

i jst laughed and wked away.

thats my a friend always mock & laugh when the mkters of some banks come to meet him,

Please i need help on this loan thing

U jst made my day. A very simple step

Its simple. PROTEST!