DEBT FINANCING IN NIGERIA: CONCEPT OF OWING IS A SIN THEORY.
BY THANKGOD NWEDUKWU,Esq

INTRODUCTION:

Business continuity and sustainability are the priority of every prudent investor: howbeit success may most often than not be unguaranteed, it still calls on business owners and the general financial public in the business sector to be on top of one’s A-Game to maximize profit, ensure adequate utilization of available resources “not limiting to human and capital resources,” promote business growth and continuity.

In the true sense of the present economy, running a business in Nigeria has been bedeviled with certain shortcomings most especially business funding or working capital; causing a paradigm shift in entrepreneurship quota. In navigating this barrier, the business considers either primary or secondary crowdfunding {“I am biased on startups in this regard”} to either raise or support working capital. The resultant of this epoch pans out on either Equity Financing or Debt Financing. Debit Financing is the method adopted by businesses in raising working capital through the issuance of debt instruments to investors such as bonds, treasury bills, debentures, and bank loans. Equity Financing is the direct opposite of Debt financing whereas the former offers the company’s securities to investors in exchange for investors’ money.

In this Article, attention is focused on Bank Loans as a method of Debt Financing in Nigeria: the roadmap, and the present reality of Bank loans.

THE ROADMAP:

Banks are statutorily empowered by the Central Bank of Nigeria to issue either secured or unsecured loans. This is the quest to provide working capital or “available money” for Bank’s customers and the general public; either for business or personal consumption. Although the purpose of loans and banks' participation in masses elevation and eradication is highly underrated: it is apposite to state that banks' contribution to businesses and human progress is one-third in the generality of economic development in Nigeria. Banks have and remain the first or last call for monetary interventions.

There have been thorough evolution in banking practice as it relates to the issuance of loans and antecedent application roundabout. Over the years, bank loans suffered setbacks as it pertains to accessibility, processing, and repayment: though much has not changed with the recent development of technology/digitalization, business-friendly regulatory policies, and intervention of regulatory bodies such as Federal Competition and Consumers Protection, and Central Bank of Nigeria; have made access to loan, terms, and condition of loan offers entirely seamless. Hence, it is relatively pragmatic to access bank loans within 24 hours without stepping out of one’s comfort zone.

IS BANK LOANS OVERRATED?

It is now imperative to shoot a poser: why is the concept of bank loan overrated? No concept is not overrated provided it impacts on life and economy of the people. Bank loans gained their tag because of the rise and fall that ensues; just as people and businesses require money to survive and perform certain functions, banks are required to recover from customers the facility advanced, the peculiar nature of the recovery steps is why banks' loans are overrated.

SHOULD BUSINESSES OPT-IN FOR BANK LOANS?

Ideally, a bank loan is not the problem it is the attitude of the borrower in management and repayment of the bank loan that is the problem. Although the Bible decreases brethren from borrowing as can be glared in the Book of Proverbs Chapter 22 verse 7 thus: “The rich ruleth over the poor, and the borrower is servant to the lender” it is regardless of which, the need for businesses to remain in business is weighty and pivotal. Where there is no working capital, businesses or investors are advised to consider bank facilities/loans as one option for business rescue and restructuring.

it is needless to state that bank loans offer leverage of servicing or saving devasting immediate cost, allows flexible repayment, and boost business activities and expansion, et al.

Investors and businesses normally execute formal contract agreements {Offer Letter or Facility Agreement} in the case of secured loans or execute simple/smart contracts {electronically generated agreements} in the case of unsecured loans. Bank customers are advised to read and sit on top of the agreement for a look to appropriately understand the terms and conditions of the offer letter or refer to a Legal Practitioner for advice.

PROBLEMS ASSOCIATED WITH BANK LOANS IN NIGERIA.

In business, just the general reality of life, it is not a desire of people for problems to foist on them or their businesses but it is bound to occur. It could be that the business is growing south instead of anticipated north or unforeseen circumstance bedeviled; which the case is, both the bank and the customer is affected.

Stems from the above, customers have adopted the approach of surpassing banks/creditors by engaging practitioners to flood processes in the guise to stall recovery; customer on some occasions raises feeble and flimsy excuses to evade repayment of the loan. Where the facility is not secured, banks go through rigorous processes to recover such debt amidst costs likely to be incurred in the recovery of such debt. In the scenario where the facility is secured, banks will have a first-in-time option to call-in such property pledged.

CONCLUSION:

Debt financing is not a crime, borrowers should live up to stand. Repayment of debt shouldn’t be a reason why businesses wound up; It should be the reason why a business should repay its debts. The Holy Bible in Psalm 37 v 21 condemned the attitude of not repaying debt as it provided: “The wicked borroweth and payeth not again: but the righteous sheweth mercy, and giveth”. Professionals should also desist from promoting clerical debtors.

It is pertinent and appealing to further state that debt recovery steps should not be extraneous however, borrowers should not expect love and like wish the bible in Mathew 18 verse 25 the ordeal of unpaid creditor thus: “And since he could not pay, his master ordered him to be sold, with his wife and children and all that he had, and payment to be made”.

It is better to err on the side of caution by ensuring that such bank facility advanced is duly managed and repaid.