Part IV – LOAN UTILISATION AND REPAYMENT
The day your facility is disbursed to you, you should tell yourself and all those involved in your business that you will have to pay it back plus the interest and other charges. To ensure effective utilisation of the loan and the making of repayment easier, you should focus on the following:
- Purpose and utilisation:
The lender made an assessment to grant you the loan based on the purpose (and of course other factors). It is therefore morally wrong and even criminal to use the proceeds of the loan for anything other then the purpose for which it was granted. Upon detection of ‘diversion’, the bank can immediately call on the loan and demand full repayment. This must be avoided as it not only jeopardises your success, it also impacts negatively on your credibility and can make accessing loans even from other istitutions more difficult, if not entirely impossible.
If, however, you have a justifiable reason to use your facility for a purpose other than it was granted, you should first discuss with your lender.You can provide justifications and request for changes or at least the formal consent of your lender. If you work with your bank on completely honest, transparent and upfront basis, you will find them supportive and understanding when difficult times come. And believe me difficult times come! Furthermore, the same approach should be adopted even when dealing with informal lenders. Things have a way of going wrong when there is no full disclosure.
- Relationship management:
The concept and practice of relationship management is a very nobel one. It makes it possible for you to have a single point of contact with your lender. Such an officer (Relationship Officer or Relationship Manager) is really like your own staff working with the lender. You should carry them along on issues that may impact their business. You should communicate with and intimate them upfront whenever you are expecting challenges. On the reverse side, and depending on your size, you should also have officers who relate closely with the lender. It is important to have more than one such officer in your business. It is comforting for your lender to have an officer in your system that is always available to them.
- Repayment:
Some loans are revolving. That means they are continoulsy available. Such loans just come with periodic reviews and cleanout clauses. Other loans require periodic principal repayments whilst others yet require bullet repayments. No matter your type of loan, you should be clear about what is expected of you as the borrower and ensure compliance. Once you can meet your repayment terms, you can be sure your lender will always be available to support you.
- Handling loan problems:
Unfortunately, sometimes loans gives the business and the lender problems. There are early signs that a loan might become problematic. Both the lender and the business owner should be able to see the red flags. When noticed, these early warnings should be taken seriously. There are about two possibilities. First, the business owner should be able to detect the early warning signs and take measure to address the situation. Second, the lender can intimate the business owner if they detect early warning signs. In such a situation, the business owner should not be defensive, but should instead listen and take measures if required. In both scnerios, honest communication is absolutely critical and necessary. If the lender and the business owner work sincerely together, budding loan problems can be solved before they grow into monsters. If a lender and a business owner are able to work jointly to amicably resolve loan challenges, they will go a long way in business together.
