• It’s not only the lender that needs to know you, be sure the lender is right for you!

Whether it’s a personal or business loan, the choice of your lender is important for many reasons. The lender is undergoing a major risk, believing you would pay back as at when due. Before any lender avails a loan to you, there is a minimum assessment that is done to determine your eligibility, which is what gives comfort to the lender. Similarly, you need to assess your lender and ensure you are comfortable partnering with the institution. As you may know, taking a loan is a contract and there is need for a reciprocal assessment that ensures mutual confidence between both parties, therefore, performing an assessment on your lender before you go into the contract is crucial.

• What are the factors to consider?

Whilst your lender focuses on your ability to pay back the loan, you should focus on issues that brings savings and convenience to you, for both current and future times. Avoid being myopic in your assessment, think of the lender as a partner for mutual growth, therefore the lender must be able to support your immediate and future credit needs.

Some important issues to be considered when choosing a lender: the Business culture and ethics of the lender. This is subjective but quite relevant in deciding the right lender. The ethics of the lender determines how you are treated as a customer today and in the future. Whilst you must avoid a default as much as possible, it does happen that circumstance beyond your control can lead to a default on your loan. The culture of your lender would determine how you are treated in such situation.

Some lenders would afford you a grace period by extending the tenor of the loan and/or change the terms of the repayment, perhaps from a monthly amortization of principal to a bullet repayment to fit into the new realities of your cashflow/income. However, some lenders would care to understand the realities of your circumstances, empathise with you, and seek ways of resolving the default amicably. Others can be quick to embarrass you and cause more damage. For instance, some lenders are known to parade defaulters in the open market, some are renowned for embarrassing defaulters at social gatherings and some just want to ensure that you lose your job, if you are a salary earner, as they send embarrassing correspondence to your employer, who may be forced to pay on your behalf (of course not without relevant punishment) or terminate your employment.

Similarly, if you had issued a post-dated cheque, some lenders would present it at the bank, even when they know your account is not funded, just to establish a legal action against you and possibly report you to the Economic and Financial Crimes Commission.

It is pertinent that the ethics and culture of your lender should be considered crucially. Find out who the lender is and the culture of the firm. In banking, there are “3Cs of credit”, which forms the basis of decision to grant a loan or not; “Character, Cashflow and Collateral”. The consensus is that the “Character” of the borrower is the most important criteria for granting a loan. In other words, the same way the lender checks your character in assessing your eligibility for a loan, you should check the character of the lender before you take a loan from the firm.

Consider this advice from us, as we hope to discuss a few more factors to consider in choosing the right lender.

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