Loans are a very vital part of anyone’s financial life, especially those in business. Loans are a proper way to not just get capital to start your business, they are also one of the most used means to inject capital to grow your business.
Organic growth can be painstakingly slow and many businesspeople find it critical to add some financial backing to stimulate the business. Many financial institutions, need some kind of collateral upon which you can leverage and borrow upon.
In Kenya, one of the most used collateral businesses people use to leverage are logbooks and title deeds. Logbooks are normally preferred since the mechanics of handling the collateral are automated and easy to handle. This enables them to become the most popular collateral in handling financial emergencies.
That said, many people complain of logbook loans turning out to be bad financial decisions due to what they consider as expensive repayment and punitive penalties for default. This is normally due to a lack of proper research and decision-making from the borrower.
Firstly, it is important for borrowers to ensure that they borrow for pursuits that can enable them to repay their loans. Hence it’s important that even in cases where the money demands are emergency in nature, proper planning is done to ensure that the proceeds of the loans are utilized in a manner that can guarantee returns. A good loan should be one that helps you glug the hole that enables you to grow.
Of course, a good loan that can enable you to grow should also be very affordable. Taking loans that are very expensive can mean that in the end, you may want to repay but simply cannot repay the same. Hence, it’s important for you to read the fine line and negotiate a proper interest rate that can turn out to be affordable in the long run. Situ Credit leads the way as one of the most affordable logbook loan providers in Kenya. Providing at a rate of only 2.6 % flat rate, it means that if you borrow Kshs 100,000 from Situ credit and plan to repay in a year, this comes down to repayment of only Kshs 10,500/- every month. Assuming for example you want to put in a business-like boda boda, that means that you only need to repay 350 per day!
An affordable loan can be a breath of fresh air as it enables you to invest in varied business lines that don’t have to have spectacular abnormal returns to gain affordability to repay.
The other issue comes down to penalties. Granted, penalties for default can be a big setback. The lender obviously doesn’t want to incentivize default and hence will place some kind of penalty to ensure that the borrower actually repays their loans. Most loan providers operate what is roughly a revolving fund, with the repayment money gathered to offer loans to others. Defaulting thus creates some financial traffic jams and causes the lender to lose possible income from other borrowers. It is thus important to ensure that when negotiating for a loan, try to get an installment plan that you afford to repay easily without much hassle. Loans, after all, should be an enabler, not a source of stress.
The other issue to look at is the amount of loan you are looking for. It is good manners to take exactly what you need, not more not less, to enable you to deal with the issue at hand comprehensively. Sufficient loans mean you don’t under borrow and leave your possible income-generating project hanging, or don’t overborrow and find that you have over-committed yourself since you shall waste the excess capital.
Remember, borrowed capital is interest-charged capital and hence you can’t take afford to simply take such monies without a proper plan of how to use it!
So there you have it, loans are good for you, but only if they are procured responsibly and affordably!