Every business at some point in its operating cycle will require some form of finance to pay its short term indebtedness or to fund new projects or business plans, or to acquire operating assets. Individuals at some point in their life may also need bank loans to help fund the purchase of a car, mortgage for a house or buy house hold appliances.

1. You need to formally apply to a bank for a loan – When most people think of approaching a bank for a loan, they commonly ask for a business plan. However, not all businesses require a business plan. But all loans must require that you apply to the bank formally as such it is important that you are able to articulate your needs in your application letter.

2. Banks charge interest on a per annum basis and they are not fixed– Banks do not charge interest rates per month but per annum. What this means is that when a bank offer a 20% interest on a loan it is per annum and not per month. For example, when you apply for a loan of N1million for a 3 month tenor at an interest rate of 20%, your interest will be N50,000. Which is 20% of N1million apportioned for just 3 months out of the 12. However, it can actually be lower depending on how often you repay the principal. Meaning if you repay N300,000 at the end of the first and second month and N400,000 for the third month your interest will be 20% of N1m for the first month =N16,667. Second month will be 20% on N700k for one month= N11,667 and finally N20% on N400k for one month = N6,667. The total is now N35k. The interest rates offered to you is also not cast in stone as banks often have a caveat in the offer letter that allows them to increase the rate whenever they feel the market conditions require it.

3. Different banks offer different interest rates and terms and conditions – Just the way the price of goods and services differ in the market so does the interest rates and terms and condition banks offer. Whilst some might favour you in terms of lower interest rates they might offer shorter repayment period. This takes me to the next point;

4. Never ignore the terms and conditions – When gives you an offer letter they aways include a set of “Other Terms and Conditions” or “OTC”. Usually, they differ from the conditions like collateral, interest rate, tenor (Terms and Conditions or TC) that most people prefer to look at. The issue however, is that when a loan goes bad and a bank takes you to court it is not the TC that often matter. The OTC is probably more important as it typically contains those issues that determine what the bank can do in the event of a default.

5. Banks always ask for a collateral or some form of security – Banks no matter the type of loan you ask for will ask for some form of collateral. It could be a landed property, asset or even your personal guarantee. Sometimes they remember to register claim to these collateral in the court and sometimes they don’t. When they don’t they are at risk to loosing claim to the asset in times of default. But don’t be fooled the court may still recognize an encumbrance even if it isn’t registered.

6. Defaulting on repaying your bank loans when their due doesn’t mean the bank will take over your business – Yes, banks like to avoid the court as much as you do and quite frankly want you to succeed because your success and theirs is directly proportional. If you can’t pay back all of your loans, it is better to pay a portion of it that you are able to than not pay at all. Judges often take cognizance of that which positively helps your case. So when you default in repaying any portion of your loans endeavor to approach the bank and seek a new deal

7. You can always attempt to refinance or restructure your loan – Following from above, you can always approach your bank to restructure your loans if you think the current terms are not favorable to you. And it is not also when your loan is bad that you can approach a bank. You can also approach them when  your business is doing well and your are servicing your loans promptly. Business are such that the owners must constantly seek ways to improve its operational conditions you cannot just rest on your oars. Refinancing your loan involves approaching another bank to take over your existing loan as a new lender. You should utilize this option when the new bank offers your better T&C.

8. You can ask your bank for a moratorium – A moratorium is simply a bank permission to a borrower to suspend repayment of principal for a period of time. Because some business ideas require time to start making money despite borrowing from a bank, it makes sense to give the business some time and not burden it with huge cash outflows that it could better use in growing the business. Banks recognize that and will often allow borrowers a period of grace (one month, three months, one year etc) where they only pay interest and resume paying interest and principal at the end of the moratorium.

9. The biggest threat to defaulting is not your interest rate but your Debt Service Coverage Ratio (DSCR)-  Imagine two guys Mr A and B each borrow N1million but with Mr A told to repay over one year and Mr B over N3 years.They both get charged 20% per annum interest rates and will repay principal and interest at equal installments. Mr A will have to pay a total of N92k every month for one year till the loan is repaid whilst Mr B pays N37.1k every month for the next three years. Now assuming they both generate cash of N100,000 every month in their business who do you think will go default sooner should there be a sudden drop in revenue within the first year? Certainly it is Mr A, even though he pays less interest (total of N111.6k) compared to Mr B (N337.8k) over three years. This is because Mr A has a DSCR of 1.09x compared to Mr B with 2.7X. Provided Mr B’s business earns a return on his investments that is over 20% he almost sure to make a profit despite paying higher interests.

10. Banks have hidden charges – Apart from the interest rate bank charge, they also charge you fees and C.O.T. But off course we are familiar with these. However, banks also have other cost which they mostly do not tell you when you apply for a loan. For example, they deduct taxes whenever they charge you C.O.T or WHT when they are paying you an interest. They also charge you punitive interest rates whenever you default in payments even though your loan agreement provides a less punitive rates for such. It is important to always ask your accountant to conduct a monthly spot check on charges when they prepare bank reconciliation reports.

29 COMMENTS

  1. Thank u sir for the detailed explanation. I just secured a government job with a salary of 120k per month. I’d like a loan of 1.3million . What can of estimated interest will I be charged n how much will I deducted from my account. On a Two years payment plan.

    • At an interest rate of 24% you will be paying about N68, 732 monthly in both interest and principal repayments. That is more than half your monthly salary.

  2. Well detailed. Is there a private message option? Or maybe email address? Need some serious advice regarding my loan repayments.

  3. If I have a personal loan running with a bank, and along the line I lose my job by cause of redundancy. Will insurance repay bank my outstanding balance?

  4. Pls if I take a loan of 800k from first bank,for 3 years against salary,his much would be my total interest payment? What would happen if I later decide to pay off at d end of the first year.?do I still pay the interest for the 2nd year?

  5. Pls i need a fast answer for this.
    1. Which bank in nigeria has the lowest interest rate in Nigeria
    2. What collecteral would best fit a loan.
    3. What and what should be involved when going to bank for a loan
    4. What are the advantages and disadvantages of loaning system.

  6. Please if I apply for a loan and the repayment duration is 3months, I have payed for the first 2 months and the 3rd month elapsed on 12 December 2016, I have payed half of the 3rd month and I am yet to complete the remaining half and my bank is threatening to auction my goods, Pls what can I do to avert the auction…

    I am a business man and business is not so fine lately…

    Pls help me out

    • If you cannot repay the loan within the timeline given, I suggest you officially write the bank asking for a restructuring. Explain your situation to them and ask them to spread the balance over two to three months. Let us know if you need help writing the letter.

  7. I would really appreciate your assistance with the format to writing the letter and please the loan is a temporary advance fund from first city monument bank without a collateral, my business was used as the collateral… I would appreciate your response as soon as possible
    Thanks in anticipation.

  8. […] Assumption on Tax: We all know that registered businesses are expected to pay a certain percentage to the Federal Inland Revenue Service. In many cases, a new business can get a tax holiday of up to five (5) years. During this period, no corporate income tax is payable and any dividend distributed from the pioneer profit will be exempt from withholding tax. Otherwise, you pay the Company Income Tax (CIT) which is about 30%. We will cover more details on tax and employees in our next series on setting up a company. I would also recommend reading 10 tips you must know before seeking a bank loan in Nigeria […]

  9. I want to collect a loan of 50,000,000 to complete a hotel project what do u think would b my interest rate and how much will i be paying in duration of 4years

  10. Dear Applicant
    Getting a legitimate loan have always been a big problem for customers experiencing financial problems. Issue of credit and collateral are something that clients are always interested in finding a loan from a legitimate lender. But private credit services made ??a difference in the lending industry. Sanchez gray Loan firm, offer loans at 3% and is transferred to local and international clients. We had the privilege to meet their financial needs. * Loans to investors * Debt Consolidation * Second Mortgage * Business Loans * Personal Loans * International Loan * Social security and no credit check is a 100% guarantee. All you have to do is let us know what you want and will surely make your dream come true true. * Contact E = mail: E-mail:conadofinconsults@outlook.com or call +2347067284980
    Honestly, I’m waiting for your answer. Best Regards

    Do you need a need? Personal Loans? Business Loans? Mortgage loans?
    Agricultural and project funding?
    We give out loans at 3% interest rate! Contact email
    conadofinconsults@outlook.com OR CALL +2347067284980

  11. Dear Applicant
    Getting a legitimate loan have always been a big problem for customers experiencing financial problems. Issue of credit and collateral are something that clients are always interested in finding a loan from a legitimate lender. But private credit services made ??a difference in the lending industry. Sanchez gray Loan firm, offer loans at 3% and is transferred to local and international clients. We had the privilege to meet their financial needs. * Loans to investors * Debt Consolidation * Second Mortgage * Business Loans * Personal Loans * International Loan * Social security and no credit check is a 100% guarantee. All you have to do is let us know what you want and will surely make your dream come true true. * Contact E = mail: E-mail:conadofinconsults@hotmail.com or call +2349067084172
    Honestly, I’m waiting for your answer. Best Regards
    Do you need a need? Personal Loans? Business Loans? Mortgage loans?
    Agricultural and project funding?
    We give out loans at 3% interest rate! Contact email
    conadofinconsults@hotmail.com OR CALL +2349067084172

  12. Pls I want to apply for a loan of 2million INA UBA where I have a salary acct. I have a government job and I earn 240,000. How much would I pay on a monthly basis if repayment is spread over a 1year period.

  13. Hello, I have a loan gone bad and the bank is on my tail and my job was terminated. I took an employee credit loan of 2,300,000 and was paid a benefit of 1,250,000,instead of the benefits to liquidate the loan, the bank deducted from the benefits monthly until they finished the money. Please what do I do?

  14. Please Sir, I want to get a loan with First bank N6M. HOW MUCH WILL I PAY BACK for a duration of 5years. Would it be possible for me not to pay back monthly but yearly till its complete??

  15. Please sir am à student but i do business also am tired of door to door business i want to get loan of 500k to get à shop .but d problem is i dont have à land or house for collatéral is it possible to get the loan? Or is they anything else i can use lesser.

  16. I am Sarah Aluya by name, I live in Lagos , i want to use this
    medium to alert all loan seekers to be very careful because there are
    scam everywhere.Few months ago I was financially strained, and due to my
    desperation I was scammed by several online lenders. I had almost lost
    hope until a friend of mine referred me to a very reliable lenders
    called Conado Fin Consults who lend me an unsecured loan of $50,000
    under 24hours without any stress. If you are in need of any kind of loan
    just contact via: conadofinconsults@hotmail.com I am using this medium
    to alert all loan seekers because of the hell I passed through in the
    hands of those fraudulent lenders. And I don’t wish for any one else to
    pass through such hell that I passed through in the hands of those
    fraudulent online lenders,i will also want you to help me pass this
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  17. Do you know about the Infinite Banking and Family Banking concepts? If yes, and ideas on how we can apply it here in Nigeria.

  18. I took a loan of #3M from my bank and I had a problem in my business and I cannot be able to pay back immediately. Now I’ve applied for c of o which will be ready in 3months as a collateral to use and borrow from my bank so that I can pay back d other loan and use d balance to start off my business again. Should I explain this to my bank? Will they accept? to give me 2 to 3 months to pay back ie when I’m expecting d c of o to be used as a collateral. Pls I need reply via mail. Tnx.

  19. Do you need an urgent loan, interest rate 3% if you are interested you can contact us today for a loan via Email:Micheal.Peterson343@hotmail.com

    Best Regards

  20. I need I loan of 2million to 3million but I have a house at Ajah but I don’t have c of o I only have deed of agreement from the family I bought the land from and receipt how can I make it

  21. I’m Mr. Paul from Jos, I want to get a loan of N5m for building project with 4yrs repayment period. Which bank do u advice I can contact that has low interest rate and what is your advice?

  22. Dear Applicant
    Getting a legitimate loan have always been a big problem for customers experiencing financial problems. Issue of credit and collateral are something that clients are always interested in finding a loan from a legitimate lender. But private credit services made ??a difference in the lending industry. Sanchez gray Loan firm, offer loans at 3% and is transferred to local and international clients. We had the privilege to meet their financial needs. * Loans to investors * Debt Consolidation * Second Mortgage * Business Loans * Personal Loans * International Loan * Social security and no credit check is a 100% guarantee. All you have to do is let us know what you want and will surely make your dream come true true. * Contact E = mail: E-mail:conadofinconsults@hotmail.com OR CALL +2349067084172
    Honestly, I’m waiting for your answer. Best Regards

  23. I need your help
    Please I need 18,000 for Medicine
    Please help me !!
    God will also help you all
    3110993325
    First bank
    Oyeyinka Yetunde

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