Business Loans

Non-performing loans (NPL) are loans in which the recipient is in default and has not remitted the monthly loan repayments for a specified period. Although the exact features of non-performing loans can vary depending on loan agreements, industry and type of credit granted. The terms “no payment” is usually defined as null payments of either principal or interest in a given period.

How Does A Non-Performing Loan Work?

When a loan is listed as non-performing, it is considered a default. The chances of recovering such loans from a debtor in full are extremely low. However, if the debtor resumes payments again, it becomes a reperforming loan, regardless of the status of the default payments.

In the banking sector, commercial loans in Nigeria are considered non-performing if the borrower has made no loan repayments within 90 days. On the other hand, for a consumer loan, 180 days without payments classifies it as a non-performing loan.

However, it is essential to note that there is a slight difference between a loan in arrears or default. A loan is in arrears when the principal or interest payments are delayed or completely missed. While a loan is in default when the debtor is unable to meet his obligations – the lender at this point considers the loan agreement to be broken by the debtor.

How Banks Handle Nonperforming Loans

Generally, non-performing loans are regarded as bad debts because the chances of loan repayments are quite minimal. As a result, having more non-performing loans in the Bank’s records affect it’s cash flows negatively. This could ultimately harm the Bank’s stock price. Therefore, they may have to take precise actions to enforce and ensure the recovery of the loans.

If it’s an asset-based loan, one action is taking possession of assets pledged as security for the loan. For instance, if the borrower uses his landed properties as collateral for the loan, the lender will take possession of the land. The Bank then puts the property up for sale to recover the amount owed by the borrower.

Banks may also redeem the right of the mortgage on homes where the borrower has failed to meet his mortgage obligations. This can only be done after the number of days due, as stated in the loan agreement has expired.

The lender also has the option to sell the non-performing loans to collection agencies to get rid of such loans from their balance sheet. The Bank will sell the non-performing loans at discounts, and the collection agencies will try to retrieve the defaulted loans. Alternatively, the Bank can also enlist the services of a collection agency to enforce the recovery of such credit. A small percentage is charged in exchange for their services.

Types of Nonperforming Loans

Debt can be regarded as “non-performing loan” in any of the circumstances stated below; 

• Loan repayment of principal and interest are at least 90 days due, and the lender now believes the borrowers will not honour their debt obligations. The loan is recorded as a bad debt in the books
• Ninety days’ worth of interest payments is refinanced, delayed or capitalized due to adjustments in the loan agreement.
• A loan in which the principal repayment date has matured, but some part of the loan remains outstanding.

Conclusion

The non-performing loans to Loans Ratio help ascertain the tension in a portfolio of varied loans. The higher the ratio, the more danger the lender is for having that portfolio.

The non-performing loan ratio is the ratio of the number of non-performing loans in a bank’s loan database to the total amount of outstanding loans the Bank holds.

There are several financing terms to be familiar with, and it’s possible to miss out on critical interpretations when we come across them in everyday use. Ones of such are Asset Based Loan/Lending (ABL). This form of lending is granted only to business entities and not consumers. It is often used by medium scale enterprises to cover short term cashflow demands.

What are Asset-Based Loans?

Asset-Based Loans are a type of business financing secured by company assets used as collateral. These loans may be secured by account receivables, inventory, or other property owned by a borrower. They are just loans based on the assets of the company, that are used as collateral.

This could also result in putting your future revenue on the line as a company to enjoy some money today.

How Asset-Based Loan Works

Many organizations often take out loans to meet scheduled cash flow obligations. For instance, a company might obtain a line of credit to make sure it can cover its monthly salary expenses even if there’s a slight delay in expected payments.

Upon seeking the loan, the business might be unable to show strong cash flow statements to cover a loan. The lender may propose to approve the loan with its assets as collateral. For example, a new bakery might be able to take a loan only by using its equipment to secure the loan.

The term and conditions of an asset-based loan usually depend on the type and value of assets offered as collateral. Lenders prefer highly liquid assets as collateral because that can be easily converted to cash if the borrower fails to meet its obligations. 

Who Uses Asset-Based Lending?

Asset-based loans are often used by organizations that need equity capital to operate or grow. Usually, organizations that request for this line of credit have cash flow problems. The asset-based lending facility enables the business to manage its cashflow problems effectively as well as positioning the company for growth.

Who Qualifies For Asset-Based Loans?

Generally, asset-based financing is given to small and mid-sized organizations that are solid and have enough assets that can be funded. The company’s assets must not be put up as collateral to another lender. In a case where they are pledged to a different lender, the other lender must agree to relieve some of the right on such collateral to the new lender. 

What Can Be Used As Collateral

The main collateral generally accepted for an asset-based loan is accounts receivable of the company. However, other loan security, such as inventory and equipment assets can also be used. These assets can later be used to recover non-performing loans in the event there’s a loan default.

Conclusion 

Before offering a loan, the lending institution needs to do a thorough due diligence process on the borrower. While the process of due diligence is on, the lender determines the value of your collateral. The lender also identifies any complications on the collateral and inspects the accounting records of the organization. Lenders carry out onsite visit and probe further by interviewing relevant employees.

The due diligence process is often subjected to a charge which varies from time to time and across different organizations. 

Mortgage loans are important these days. Like most people, we all dream of becoming a homeowner, but very few of us get to achieve this dream. If culture permits it, becoming a homeowner can be said to be a part of the “Nigerian Dream.” Learning a thing or two about how mortgage works will set us on the straight path to achieving this dream.
Mortgages provide the option of paying for a house in instalments. With the Nigerian landscape in view, it is essential to understand the process of getting a mortgage loan. We have explained the process involved in becoming a homeowner with a mortgage below;

How To Get Mortgage Loans In Nigeria

1. Save a deposit: Have in mind you’ll need to put down a deposit if you are looking to buy a home with a mortgage. The percentage deposit will vary depending on the property owners or the financing institutions.
   
2. Seek out house buying schemes: It will be of better advantage if you employ the services of house buying schemes like the NHF (National Housing Fund) or private house buying schemes popularly know as ‘developers’. They know the best deals and offers along with better financing solutions for home owning.
   
3. Plan for the long term: Mortgages require long-term commitments. You should make a budget with your mortgage payments in mind. Your mortgage payments should not be more than one-quarter of your income. Structure your monthly expenses from your income and see how much you can pay in for mortgages monthly. You can use the services of mortgage calculators.
   
4. Search for a home: After preparing your deposit and weighing several mortgage offers. It’s time to look for a home with mortgage payment plans. You might likely have this sorted after employing the inquiry the services of house buying schemes.
   
5. Obtain a mortgage loan: With a deposit in place and your budget structured. Now the formal talks can begin and signing off necessary documents for your new home. Obviously, after you must have done the essential research in the right places.

Who can apply for Mortgages in Nigeria? 

Anyone can apply for mortgages in Nigeria, provided you’re gainfully employed or earning an income. 

Here is what Mortgage loan companies in Nigeria are interested in: 

• Your monthly income and expenditure
• Your debt profile
• The value of the property you want
• Determine if the mortgage is something you can afford.

Why is it challenging to Get mortgages in Nigeria?

Life is all about risk, and as with money, the riskier it gets. Several factors make it challenging to apply for mortgages. 

Such as:

• Poor debt profile/profiling: With poor debt profiling, lenders are unable to predict and ascertain how well a loanee can keep up with payments each month. While a person with a poor debt profile will not qualify for a mortgage loan

• Insufficient deposit: not having sufficient deposit directly affects the mortgage you can apply for and the house you can buy.

• Lack of collateral for the loan you wish to apply for.

• Poor knowledge and understanding of how a mortgage works.

Conclusion  

You might want to consider how much to deposit to get a mortgage before going into it. However, there isn’t a particular limit to the amount of deposit; it all depends on the borrowers’ objectives. A smaller deposit means that you’ll have to seek a mortgage cover that covers a high percentage of the property’s worth. 

Few mortgages cover high percentage properties because of the risk involved. Also, they come with unattractive fees and interest rates. It is advisable to save as much money as possible in deposit to get the best mortgage offers.

Why You Should Invest In Consumer Loans As A Retailer

Introduction

Consumer loans revolve around the lifestyle of an average person, and this has made it a popular demand, especially in developing countries like Nigeria. Regardless of how you may feel about loans, they have continued to form part of the components that shape the economy of the nation.

Given the above, there are lots of underlying investment opportunities in investing in consumer loans in Nigeria.

The process of investing in consumer credit is quite different from stocks or mutual funds. This is because of its flexibility and risk to market fluctuations.

Consumer loans are loans given to consumers to fund specific types of expenditures. Examples include mortgage loans, credit cards, auto loans, student loans and personal loans.

These loans could either be secured (backed with collateral) or unsecured (which is not supported by the assets of the borrower)

Investing in consumer loans can be a winner for the investor and here are some reasons why.

High Spending Power

Consumer loans can enhance sufficient demand by activating consumer spending and consumption. Increased consumption will automatically increase production, employment opportunities, improve the standard of living, etc.

The Rise Of Fintech

The rise of the fintech industry has contributed immensely to the growth of consumer loans in Nigeria. The Central Bank of Nigeria in its bid to encourage financial inclusion enabled a favourable playing ground for emerging fintech companies, and it has been paying off so far. The fintech institutions have influenced the competition of the financial sector to think more on a micro-level of operation than a macro.

Large Market Share, More Investment Opportunities

The number of consumer loans moved from 3m in 2014 to 4m in 2015, which is more than 30% growth in a year. The stimulation of credit to consumers has created more investment opportunities in consumer loans.

The market is only getting bigger. This exponential growth can help reduce the risk involved in investing in consumer loans

Regulatory Support

While the Central Bank of Nigeria continues to create a healthy competitive financial industry, they have also issued favourable policies to enable micro-lending in Nigeria. A good example is the introduction of Bank Verification Number, which has allowed the policies of the CBN to be more productive on a micro-level.

How Investing In Consumer Loans Work

1. Individuals submit their loan applications for approval to a lending institution. The loan amount varies depending on the limit set by each lender.
2. The lender crosschecks all applications with their listing criteria
3. The lender now checks to confirm the information provided by the borrower
4. Upon confirmation, the investor gets to buy a portion of the loan disbursed to borrowers.
5. And earn interest based on the contractual agreement between the investor and the lender.

However, it is important to note that the borrower is liable to pay the interest in full to the lender. This includes the principal amount borrowed. 

Bottom Line

Challenge the old, and embrace the new –  Everything is changing in the world of today, with fast, small and effective being the new form of doing things. Money is no different. The loan sector is embracing these new developments through technologies fast, and it evolves almost daily.

If you want a relatively reliable and quick form of investment that will keep your cash flow healthy as a retailer, then you should consider investing in consumer loans.

Investing in consumer loans allows investors to maximize their return on investment. This is done by minimizing idle cash which does not earn interest and negatively impact returns.

Introduction

The value of real estate is always on the rise and you can take advantage of the soaring prices of your houses without selling it. If you own a home especially up to a decade, you might want to tap into the opportunities of a home equity loan.

What Does Home Equity Loans Mean?

Simply put – a Home Equity Loan is a type of loan in which the borrower uses his home as collateral. The loan amount is often determined by the value of the property which is about 80 – 90% of the home’s value. It can also be referred to as Home Equity Line Of Credit (HELOC)

Few Things To Consider Before Taking A Home Equity Loan

• Find out what your credit score is
• How much debt are you currently servicing
• Calculate your equity; This is mostly 80-90% of the value of your home
• Have a thorough understanding of your plan for the money
• Consider the risk

Conclusion

No financial transaction is without its own inherent risk. Taking out a loan especially when you are putting your house on the line is really a big deal. In view of this, there are other types of loans that don’t require any collateral, that you might want to consider.

However, here are one of the few things you can use a home equity loan for

1. Take advantage of loans at lower rates
2. Renovate your home
3. Refinance an existing mortgage
4. Down payment for another home.

Are you an entrepreneur looking to finance your business? Banks and other financial institutions are always willing to lend you the funds you need. However, you have got to fulfil the requirements these institutions lay down for obtaining such loans. Some of these lenders even as far as offering you credit cards.

We examine some loans you can secure as an entrepreneur or business owner to facilitate the growth of your business.

Line-of-Credit

If you own a business with limited resources, this loan is for you. Actually, experts are of the opinion that you request your banker to make this facility available to you.

The scheme allows you to withdraw as much cash as you need. This can be in cash crunches or other emergency expenses you would need. Entrepreneurs generally open a line of credit in order to meet their working capital demands. The facility is suitable for buying necessary items, paying employees and clearing suppliers’ dues.

However, entrepreneurs cannot use it for buying the necessary machinery, real estate, equipment and other similar assets. This duration is generally for one year. 

Instalment Loans

Here, you need to repay the interest and principal in monthly instalments. Experts are of the opinion that you can use this to meet any kind of business needs.

In the process of finalizing the contract with your banker, you obtain the total amount of money you require. The lender will also calculate the interest payable and determine the date on which you have to clear this loan.

If you are able to do this, you do not incur any penalties or additional interest charges. The duration is dependent on what you intend to use the money for. Generally, it ranges from 1 to 7 years. However, if you plan on using funds to buy real estate, the facility may extend to 21 years.

Letter of Credit

If your business conducts its activities in the overseas, you need this lending facility. It allows you to make secure payments to your suppliers in different countries. You also do not encounter problems in getting payments from your foreign debtors. To obtain the letter of credit from your financial institution, you must submit some important documents.
These documents comprise your commercial invoice, the bill of lading identifying the merchandise, and the insurance policy. Most times, you may have to give a copy of the title documents of the goods you are dealing in.

Unsecured Loans

Most business owners are familiar with these loans. Bankers normal sanction them to proprietors when they are sure of the financial viability of their market establishment.

They also scrutinize the ability of these borrowers to repay the sums they lend to them. Generally, entrepreneurs may use the money for their business purpose. Moreover, they do not have to pledge any asset to obtain such modes of finance at a high rate of interest. Some of these kinds of loans can be gotten from companies like Palmcredit, Renmoney Nigeria, and so on. You can check out other sources for accessing a loan in Nigeria.

Secured Loans

These are similar to unsecured loans. However, entrepreneurs would need to mortgage one of their own assets. This is the reason the scheme has a low rate of interest. In the case of a default on the part of such borrowers, the bankers can forfeit this asset.

Entrepreneurs can access any of the seven loans to finance their business. However, such modes of debt financing are not cheap. They need to know what their requirements are and how much money they need.

Only then can they select the right one. However, when they face doubts, they consult their banks. Such professionals can assist them in taking the right course of action.

Conclusion

Financial experts say it is always prudent on your part to determine what type of loan you need. This makes it easier for the lender to up the lending scheme you seek. Subsequently, you can consult professionals to explain what you need to be aware of the type of loans you need as an entrepreneur.

Loans can be accessed from practically everywhere and anywhere in Nigeria. Other than financial technology institutions and traditional banks, small businesses can secure loans from other sources.

The Development Bank of Nigeria is one of those trusted and secure places to obtain a loan. We answer questions pertaining to the operations of the Development Bank of Nigeria, her interest rate, as well as how to obtain a loan. Subsequently, we discuss some FAQs that may stem from securing a loan from the Development Bank of Nigeria.

About The Development Bank of Nigeria

The Development Bank of Nigeria is a Federal Government-initiated scheme in collaboration with global development partners. It exists to tackle the challenges facing small and medium-scale enterprises.

Its core objective is to alleviate financial constraints experienced by these business owners.

How does the DBN achieve this? Simple – It provides finances and partial credit guarantees to eligible financial intermediaries.

Who is Eligible For The Development Bank of Nigeria Loan?

Like we have established, small and medium-scale enterprises are eligible to get a loan from the DBN. We shall also reiterate that financial institutions remain the channel through which funds and risk-sharing guarantees are provided. 

In securing a loan from DBN, it is mandatory that the prospective borrower patronises any of the eligible financial institutions. Furthermore, the DBN has enlisted 10 commercial banks and 15 microfinance banks to serve as intermediaries.

List of Commercial Banks You Can Get DBN Loans From

• Access Bank PLC
• Ecobank Nigeria PLC
• Fidelity Bank
• FCMB Limited
• First Bank Nigeria Limited
• GTBank Nigeria
• Stanbic IBTC Bank PLC
• Sterling Bank PLC
• Union Bank of Nigeria
• Wema Bank PLC

List of Microfinance Banks You Can Get DBN Loans From

• AB Microfinance Bank Ltd
• Addosser Microfinance Bank
• Baobab Microfinance Bank
• Bosak Microfinance Bank
• HALAL Microfinance Bank
• Infinity Microfinance Bank Ltd
• LAPO Microfinance Bank Ltd
• MainStreet Microfinance Bank Ltd
• NPF Microfinance Bank Ltd
• Parallex Microfinance Bank
• Seedvest Microfinance Bank
• Accion Microfinance Bank Ltd
• La Fayette Microfinance Bank Limited
• Davodani Microfinance Bank
• Trust Microfinance Bank

Getting A Loan From The Development Bank of Nigeria

We have summarised the processes of obtaining a loan from the DBN in three stages:

1. Visit a Bank: Either you decide to drop by at a commercial bank or its microfinance variant, you can simply request a DBN loan. All you have got to do is indicate interest for application; that’s stage 1 of 3. Shall we also mention that other financial institutions apart from traditional banks offer this service?
2. Indicate Interest: Upon indicating the interest in a loan application, the bank assesses the business owner’s purpose and overall motive. If this process is successful, the bank directly applies to DBN for funding. 
3. Get Your Application Approved: The Development Bank of Nigeria will need to approve the loan for disbursement. Once this is completed, commercial banks and other financial institutions serve as the intermediary between DBN and the borrower.

When Am I to Complete The Loan Repayment?

This factor is dependent upon the nature of your business and motive for seeking a loan. However, the Development Bank of Nigeria offers up to 18 months moratorium on principal payment for working capital and investment projects. Subsequently, you have until 10 years to provide the loan.

What Is The Interest For A Development Bank of Nigeria Loan?

The Development Bank of Nigeria offers flexible interest rates that are on tenure and relate to market rates. 

Conclusion

The Development Bank of Nigeria targets a specialized niche. What sets the DBN apart from commercial banks is the longer duration of repayment. For the latter, they are usually short-term. A relationship between them, however, is that commercial banks, as well as other financial institutions, are responsible for the supervision and evaluation of pans that DBN granted.

Microfinance banks exist to provide small business owners and entrepreneurs access to capital. Often, these small and individual businesses don’t have access to resources and funds from traditional banks, and only know how to get loans from microfinance banks. This challenge makes it relatively difficult to secure loans, insurance, and investments that will help grow their business.

Essentially, this is why microfinance banks are here to stay – to provide loans, credit, even insurance policies and money transfers to the small business owner and entrepreneur.

Why Are Microfinance Banks Important?

Like we have established, microfinance banks help the financially-marginalised by providing them with the necessary capital to start a business and work toward financial independence. These loans are significant because they are issued even though the borrower has no collateral. However, the interest rates for microloans are normally high because of the risk of default.

Microfinance institutions provide small loans as well as another resources to business owners to help get their businesses running smoothly. Without microfinance banks, these businesses may have to resort to borrowing money from family and friends.

Examples of popular microfinance banks in Nigeria include RenMoney, AB Microfinance Bank, LAPO Microfinance Bank, FBN Microfinance Bank and others.

Do Microfinance Banks Work in Nigeria?

On the one hand, microfinance banks are a means to end the cycle of poverty, decrease unemployment, and aid the financially-marginalized. On the other, however, some believe microfinance banks have lost their feel and have therefore gone sour. This notion stems from the argument that microfinance banks plunge business owners into deeper debt. Interestingly, most of these banks like Nirsal still grant different kinds of loans.

Conclusion

Whichever way we examine the space of microfinance in Nigeria, they constitute a part of the financial sector. Some experts believe microfinance banks are capable of contributing to the Nigerian economy by curtailing poverty. Again, this is associated with acknowledging microfinance banks as tools for financial revolution.