Through the

NMA National Committee Chairman

Investment and Projects

Presents:

2023 LECTURE SERIES ON APPROPRIATE

MEANS TO FINANCE PROJECTS
LECTURE ONE

TOPIC: LOAN ASSESSMENT: LOANS TO TAKE OR NOT TO TAKE.

Document By: NMA

National Committee Chairman
Investment and Projects
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 LOAN ASSESSMENT: LOANS TO TAKE OR NOT TO TAKE.
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Assessing/evaluating a loan application is all about weighing the risk to and the reward
involved in getting the money. The more you can reduce or eliminate the risk involved, the
better. It all boils down to your confidence in your credit worthiness as an individual or
organisation. The main check mark you want to look out for is your ability and willingness
to return the money. No loan money is free money. The most important things banks look
at for is your character in the past if you have ever taken a loan.

LOANS TO TAKE AND LOANS TO AVOID:

Loans are generally categorized into two:

BAD LOANS: These are the loans to avoid:

It’s generally considered to be bad debt if you are borrowing to purchase a depreciating
asset. In other words, if it won’t go up in value or generate appreciable income, then you
shouldn’t go into debt to buy it. For example, Cars, weddings, funerals, depreciating
equipment etc.

CHARACTERISTICS OF BAD LOANS

a. Loans coming from loan Sharks:

a moneylender who charges extremely high rates of interest, has strict terms of
collection upon failure, and generally operates outside the law and typically under
illegal conditions.

b. Commercial Bank Loans with High interest rates:

The definition of a high interest rate depends on the economic conditions. Currently,
any interest rate of more than 8% to 10% is high except you’re doing a high liquidity

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Document By: NMA
National Committee Chairman
Investment and Projects
 turnover like in oil and gas. Different loans have different interest rate, pick a loan
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with a favorable interest rate.

c. Loans that you don’t understand the terms:

Banks and other sources of borrowing, such as credit facilities, all have different
terms. It is important that you understand the terms of your debt. For example, some
loans, mortgages in particular, have adjustable rates. That is, the interest rate that
you pay on your loan will change as a benchmark interest rate changes. If the
benchmark interest rate increases, your loan payments will also increase.

d. Loans that you cannot afford the Repayment package and cycle:
When you enter into a loan agreement, you will be provided with the amount and
timing of loan payments. Any debt that has payments that don’t fit in your budget
is bad debt. I would even take it one step further and say that any debt that has
payments so high that you aren’t able to save for emergencies, large purchases and
retirement is bad debt.

e. Loans spent on Depreciating collateral:

In many cases, debt is used to purchase something large, such as a boat, a home or
a car. When you make a large purchase, the item you bought is considered collateral
and the lender can take the collateral if you don’t make your loan payments. The
value of some items goes down (depreciates) faster than the principal of the loan. If
you default on your payments when that happens, the lender is allowed to make you
pay the difference. Determining whether your purchase is something that will retain
its value or will depreciate quickly is a good test of whether it is financially
responsible to use debt to make the purchase.

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Document By: NMA
National Committee Chairman
Investment and Projects
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f. Loans spent on items with NO-LONG TERM BENEFITS:

don’t invest in loans to purchase items that has no long-time benefits otherwise you
will be paying interest for something that is not generating income. Always consider
using debt for items or experiences with long-term benefits.

GOOD LOANS (ADVISABLE LOANS TO TAKE)

These are loans that you should take. Good debt is often exemplified in the old adage “it
takes money to make money.” If the debt you take on helps you generate income and build
your net worth, then that can be considered positive. Good debts are also debt that improves
you and your family’s life in other significant ways. Among the things that are often worth
going into debt for are your own Business, Education, Real Estate, Etc.

CHARACTERISTICS OF GOOD LOANS:

The first requirement of good debt is that it doesn’t have any of the characteristics of bad
debt. That is, good debt:

a. Has terms you fully understand.

b. Fits in your budget, especially if your budget also includes saving for retirement,
large purchases and an emergency fund.
c. Is one that has a reasonable interest rate maximum at 12% and longer duration.
d. Is backed by Appreciating collateral.
e. Is used for something with long-term benefit.
f. Is not coming from a loan Shark.

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National Committee Chairman
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SOURCES TO GET LOANS IN NIGERIA

1) Central Bank of Nigeria via Commercial Banks

2) Bank of Industry and Bank of Agriculture via Commercial banks
3) Corporative Societies to which you must belong
4) Grants

BEST APPROACH TO GETTING A LOAN

1) Form corporate partnership with like minds

2) Take loans when Age is on your side
3) Take loans with corporate names

FINAL THOUGHTS ON LOANS TO TAKE OR NOT.

loan, when used carefully, can greatly improve your life and your ability to earn money.
However, if you take on too much bad debt, it can lead to significant financial problems.

Further discussions, kindly reach out to me

Dr Iyke Ukweh

NMA National Committee Chairman

Investment and Projects

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Document By: NMA
National Committee Chairman
Investment and Projects