IN THE ABUNDANCE OF WATER, THE FOOL IS THIRSTY - Bob Marley

Welcome to another week of financial learning. I believe we are all well and staying safe under these "abnormal" Covid-19 times!

Our authoritative Financial Learning Epistle sponsored by Patrick TV GH went on a long break. We are back this week with exciting nuggets of lessons. Today's caption is a famous quote by the Legendary Reggae Superstar, Bob Marley, that most of us knew or heard whiles growing up.

I have decided to bring it up again today to give us a new perspective in our quest to expand businesses and meet personal needs and wants. For some weeks now, I have been privileged to run weekly drive time financial lessons on Onua FM, a popular twi radio station in Ghana under the Media General Group.

Our last segment focused on how businesses could easily attract financial support in loans from financial institutions. I will be sharing some of the questions from our callers today and my objective answers and opinions to them. The loan issue is crucial today because the recently published Average Lending rates of Universal Banks on the 31st July 2021 by the Bank of Ghana showed a significant downward trend. The average lending rates across most banks ranged between 15.97% to 24.89% per annum.

The above narrative translates into 1.33% interest per month to 2.074% per month. The average lending rates of Banks not too long ago ranged between 32% to 26%. Therefore, the current rates offer some form of respite to businesses regarding their impact on profitability. Let me now put the above rates into an actual money perspective.

A business that borrowed GHS 100,000 would have been paying a monthly interest of GHS 2,666.67 if the interest rate was 32% per annum. That same business would be paying a monthly interest rate of GHS 1,330.83 at the rate of 15.97% per annum. Such a business is saving GHS 1,355.82 monthly. The call by the Association of Ghana Industries, in my view, is tenable as we push the Banks to reduce the Lending rates further. In my opinion, further reductions should be made meticulously not to move the Banks into risky businesses to create margins for their shareholders. With that said, we still find a lot of businesses struggling to attract loans from these Banks. The most popular Bank adverts you see on Television and Radio nowadays are centered on loans for salaried workers and businesses. Isn't that surprising? It means Banks are calling on customers to come for loans. A scene that was not readily available some years back. Therefore, businesses should take advantage of this wave and seek financial support to strengthen and expand their operations.

In todays' epistle, I will share just two of the things' Banks consider when you approach them for a loan.

PROPER BANK ACCOUNTS

Most Financial Institutions are comfortable with customers who run their bank accounts effectively. Effectively here means all credit transactions are channeled through the BankBank with corresponding debits. No matter how tired you are, try as much as practicable to deposit monies you receive in the course of your business at the BankBank. This gives the BankBank a true reflection of the cashflows in your operations. With the insurgence of mobile money interoperability, one does not need to physically walk to the BankBank to deposit cash. You can easily use your Mobile Money account to move funds to your bank account. The bank statement is the first document Banks assess when you apply for a loan, especially if the business has been in operation for a while. Learn this habit now to brighten your chances of getting a loan from a bank at a lower rate.

TYPE OF FINANCIAL INSTITUTION

Monkeys play by sizes, they say. Every Bank work with Credit Policies! As a businessman, you need to understand and locate a financial institution to meet your financial goals. Some Banks have industries and businesses that they are comfortable dealing with when it comes to loans. Some industries are classified as high-risk, while others are low risk. The amount of loan to be considered also vary from Bank to Bank.

While one bank may consider the lowest application at GHS 5,000, another may only consider a loan above GHS 50,000. As a businessman, you need to understand how your Bank operates by asking questions from the beginning. Your line of business may be attractive to a Microfinance or Microcredit Institution. You will therefore need to focus your energy on them. Perhaps, when your business grows, you can now shift to the Bigger Banks for additional services.

Banking with the wrong Financial Institution will only lead to disappointment! I believe these two conditions will be carefully considered going forward. I will share other necessities in my following epistle. At this point, I will want to focus on some of the questions I received on Onua Fm last week, as already indicated.

Kwabena, Lapaz Question: I went for a loan from a bank some years back. It was a three months duration period. However, after a few days, a friend gave me unexpected money to close the loan. The Bank, however, said they were not going to allow me to close the facility until the three months duration had elapsed. We had a long argument, and I decided to use the loan amount. Long story short, I had challenges paying the loan. What should I do?

Answer: No Bank has the right to force a customer to go the entire length of a loan. The Bank, at best, can charge you an early payment penalty. They can not force you to use the loan and pay within the three months as agreed. There are covenants in all loans. We must read and understand those covenants as we sign the loan agreements. You will need to seek proper financial advice when you face a similar situation again!  

Ama, Osino Question: I want to apply for a loan at XYZ Bank. I, however, do not have an account with them. What do I do?

Answer: To have a bank account at XYZ Bank is ideal and perfect. However, a Bank can go ahead and give you a loan without having an account history with them if the statement you provide from your current bankers meets their standard. The focus of their credit appraisal will be on how you performed with your current Bank. So kindly go ahead and apply for the loan at XYZ Bank. However, some banks have strict policies of operating an account with them for at least a month or two. By approaching XYZ Bank, you will have an opportunity to know their credit Policies.  

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