With the increasing profitability in lending, financial services are constantly finding more ways to make the lending of its assets more desirable to people and interested institutions. Lending which is also known as financing occurs when someone known as the lender allows another known as the borrower, borrow a thing in most instances an asset that would be returned or repaid at a later date in most cases with interest.
Lending in itself creates a debt. Borrowing and lending are two phenomena that have passed through different seasons of history, all the while advancing into different forms, thus society is not new to this concept. Its profitability over time is what influenced the creation of the term ‘moneylenders’ and the regulations that have followed suit. Some of the forms lendings take now are mortgages, credit cards, personal loans, cash advances, etc.
The need for financing and raising capital either for business or personal needs is inevitable. Even persons with stable incomes are sometimes advised to take loans or mortgages as a better financial option. So in making financial choices especially as regards borrowing or lending, it is advisable to seek professional counsel or better still be knowledgeable about the choices to be made. The different sources of loans include but are not limited to banks and other financial institutions, Cooperative societies, Credit unions, Governments, etc.
Types of loans;
- Secured; Secured loans involves pledged assets guaranteed for them which could be as worth the loan amount or even more.
- And unsecured loans; On the other hand, under unsecured loans, the borrower does not attach any asset by way of guarantee. As a result, these types of loans have greater risks and higher interest rates.
Types of securities acceptable as a guarantee for loans are real estate investments, shares, stock, bonds, and cash security in form of fixed deposit, treasury bills, current accounts, or savings account. Others include assets in form of, machinery or equipment, documentary credit, or intellectual property.
Owing to the impact of the different recessions that Nigeria has faced, banks have all been seen to take cautionary approaches to lending. The purpose of which is to guide against non-performing loans and bad debts. Research has shown that the lending patterns of banks and most financial institutions tend to tilt towards industries that have higher profitability indices.
The Nigerian Bureau of Statistics in its Q3 report in 2017, stated that after the recession that had affected the nation the previous year financial institutions were more inclined to approve its loan services for oil and gas businesses followed by manufacturing, real estate, and construction respectively.
One would think that the agricultural sector would be the greater beneficiary of bank loan benefits but owing to the unpredictability of its turnover and business profits, I would say bank loans would not be a guaranteed safety net. The act of lending is purely profit-oriented, so in as much as financial institutions and other financial service providers alike aim to create a more flexible and business-friendly lending environment, it is advised that we engage the services of business advisories or investment analysts to advise our choices to prevent endangering our financial lives.
