Immediately the article https://myniusline.com/does-your-lender-intend-to-turn-you-into-a-beggar/ Hit https://myniusline.com/ , the lenders went up in arms, demanding a rejoinder from yours truly, because in their words “I have hurt the credibility of the lending fraternity by propagating half-truths”. Honestly, I only told the story from my perspective which has been enriched by several lenders in this country in the last 10 years of my entrepreneurship journey. But, I am a just person. So, I shall give the lenders what they are demanding for, a story from their perspective, telling why they are not hell bend at turning you into a beggar, but most importantly detailing how you should avoid being turned into a beggar
1. Establish a relationship with the lender
Did you know that lenders issue credit to individuals, not institutions? Individual connections AKA personal relationships are important in the lending business. Research shows that Entrepreneurs’ character is mirrored in their business. Based on these findings, a reputable individual is most likely creditworthy too. Relationships are built over time and require consistent and conscious effort. Once you identify your preferred lender, start courting them in advance. Introduce them to your business and life by telling your business and personal story. While it may not be possible to tell your story in one sitting, consider providing documented evidence such as Links to video clips of your work or articles written about your business. If you don’t know how to develop short video clips or you need well-written articles about your business get in touch with https://niuslinemedia.com/ you will be amazed at the 1001 ways your business story can land you a loan and increase your sales. The more confident the lender feels about you and your business the higher the chance of accessing drama-free credit.
2. Keep all business documentation in order and up to date
There are two important activities here: Keeping documentation in order and keeping documentation up to date. According to the lenders, the reason your loan gets denied or delayed is that you are disorganized. If you are one of those Entrepreneurs who have not seen your Certificate of Incorporation for the last three months or cannot remember the password to your Kenya Revenue Authority (KRA) account, we are speaking directly to you. It is time you put all your documents together for easy access when required. On the other hand, we have Entrepreneurs who can pick out their company documents from a stack in the dark with their eyes closed. However, they cannot remember the last time they filed the CR12 returns (oh you do not even know what that is?). When the lender requests the latest Company Registration form 12 popularly known as CR12, you wear your detective hat with a mission to find out: what is CR 12 and establish how soon you can acquire one. Your investigation leads you to the Attorney Generals’ Office where you discover that you owe that office Kshs.30, 000, money that has accrued from unfiled returns in the last 6 years. Of course, when your fellow Entrepreneurs inquire about the loan, your response is that of a classic under-informed Entrepreneur: “You know how lenders are, the only thing they don’t require for before issuing a loan is your mother”. Truth is if your documentation is in order, you will escape the heartache. Entrepreneurs need to be fully informed of business document management. Where you are not an expert or do not enjoy keeping up with such mundane tasks, hire an Accounting firm such as https://mkconsultancy.co.ke/ . Remember lack of proper documentation reflects very poorly on your financial management. The lender will be cautious when dealing with you because if you can’t keep up with simple documentation how credible are your accounts? Clearly, your lender does not want to turn you into a beggar, your disorganization and ignorance is your greatest undoing.
3. Ensure you have proper security/ Assets
Lending is a risky business. Lenders issue loans to Entrepreneurs who are largely unknown to them. Depending on the lender’s model, the borrower must provide security to guarantee loan repayment. The asset that secures the loan must be of a higher value compared to the loan amount. When an Entrepreneur does not provide the requisite security; proper documentation, the viability of the business idea, or creditworthiness of an Entrepreneur will only take you so far. Every business should possess at least one asset that can be quickly liquidated or used as collateral to cushion the business during a financial crisis. Such assets include Share certificates, vehicles, or pending invoices from credible clients. An Entrepreneur should educate themselves on the models used by various lenders. Some lenders will give credit based on guarantors. Such institutions include SACCOs such as https://ecobizsacco.com/ which is happy to give loans against your savings and guarantors who are also members of the SACCO. In the lending business, there are two types of securities: Tangible assets and social assets. Tangible assets include vehicles, share certificates, pending invoices among other things. Social assets, on the other hand, are the relationships you build within and without your network. Invest in both and you will quickly realize that your lender does not intend to turn you into a beggar.
4. Build a good credit score
A few of the predatory lenders do not care for your credit score. That is because they mitigate their risk by imposing high interests on your loan. This article is however not about the aforesaid, it’s about the credible lenders who are ethical, aim to grow your business, are probably regulated by the Central Bank of Kenya (CBK), and definitely follow the rule to the letter. These lenders care about your credit rating. Your credit rating indicates how well you repay your loans, pay suppliers, and refund money you borrow from your friends (Ok. I just made up the last one, but it does count!). If you pay all your loans – this includes mobile and bank loans – and none of your suppliers has complained to the Credit Reference Bureau (CRB) that you have not paid them on time, then you are safe. On the other hand, if you have unpaid loans that led you to be listed by CRB as a defaulter, you will need to clear your pending debt and get a clearance certificate before any decent lending institution gives you their money. When they do, you shall be on their radar because you are a high-risk client, until you prove your reliability and showcase your understanding that the lender is not hell bend on turning you into a beggar. Lastly, and definitely not the least important point, your street credibility as a borrower is important. Where possible endeavor to be known as the Entrepreneur who pays his debts on time within your circles. That way, when you are in dire need of financial rescue, your friends, will be more than willing to either guarantee your loan at a lender’s institution or save you institutional bureaucracy by lending you the money. Your social assets are just as important as your business assets.
5. Build a good case for the use of funds borrowed
Some Entrepreneurs do not understand that there is a huge difference between borrowing money for business vs. personal use. Business funds are aimed at growing the business, increasing stock, purchasing assets, or undertaking activities that are geared towards business success. If you are borrowing funds to use for anything else other than business growth, I suggest you borrow under your personal account. No lender will issue a business loan to be spent on personal needs; that is the quickest route to loan default. Just to convince the lender of your business needs consider developing a business plan that details clearly your business idea, expected costs, and projected income. The business plan will give the lender confidence that their funds will be put towards business growth and will most likely be repaid.
There are many other factors that make a lender not issue loans as efficiently as we would like it, however, consider these five factors your baseline and build up from here. Different lenders have varying terms. Make an effort to understand a lender individually. Your effort will be rewarded by the peace of mind that is derived from knowing that your lender does not intend on turning you into a beggar.