Why are Banks not Giving Out Loans is discussed in this article. We hope you find it helpful and able to satisfy your research.
In Nigeria, sourcing funds for business is often a difficult task. Those who would have invested in a company or companies themselves normally have problems of sourcing funds or finances for their business.
Why it is Difficult to Get Loans from Commercial Banks
Some of the problems involved include:
1. Interest rates
The Interest rate is the rate at which farmers can borrow money from commercial banks, i.e., the amount of money a farmer will have to pay on top of the actual money that is borrowed by the farmer.
The alarming high interest rate often discourages borrowing while the low-interest rate encourages borrowing. Therefore, farmers cannot get loans from the banks when the interest rate is too high.
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2. Security of collateral
When a farmer or business person goes to get a loan from the bank, the bank usually asks for something to hold on to till the loan is repaid. Most farmers are unable to access these loans because they do not have collaterals to give to the banks in exchange for the cash they want.
3. The long incubation period of some investments
Some investments take a longer time than expected to mature before they are eventually harvested. This on its own causes businessmen to be scared of collecting loans because at the time when the loan is mature, the investments they made may not have yielded returns in investment and sometimes, the financial institutions may not understand, leading to the embarrassment of the businessman.
4. Unpredictable economy
Sometimes, just when a person invests a lot of resources into a particular business venture, that is when the economy shakes and leads to a huge loss of investments.
If the money used in the investment was a loan, the business person often scampers for safety because there is no possible way that he will repay the funds.
5. Lack of proper record
To access loans from banks and other financial institutions as a businessman, one needs to have a track record of finances that can be relied upon before loans can be really accessed in banks as well as other financial institutions.
6. High level of loan defaulters
Most persons get loans from financial institutions and fail to pay them back when it is expected of them to do so. This does not go well for the banks as they go into bad debt and as a result, it hinders other persons from being able to access the loans too.
7. Lack of insurance policy
As long as a business lacks an adequate insurance policy, financial institutions will rarely release their funds to businesses because of the fear that they may lose it to any disaster and there is nothing to bounce back on.
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8. Lack of Surety
When there is no other person to stand in to guarantee loans, financial institutions find it quite difficult to give out loans.
What if the business person is unable to pay, they always look out for the guarantor or surety to retrieve the funds.
At other times, the process of filling out loan forms wears the businessman out and because he cannot be persistent, he suddenly stops halfway without getting the desired loan.