So, what is credit worthiness? In simple terms. This is your value in credit terms. It’s the value lenders attach to how much they can lend you. Of course, this is arrived at after looking at many parameters. If you intend to borrow money in the future, then you had be z tter start working on your credit profile from the earliest possible time.
Conventional lenders are increasingly sharing information of their borrowers and also using data a lot to know who can and who can’t be lend (One of the steps of processing your loan application is checking your credit score (which is a numerical figure they would generate using their formula to determine your risk profile). Not only the lenders, but employers are also checking out the credit worthiness of their potential employees. You have seen this in job advertisements. We currently have 2 credit reference bureaus in Kenya presently (Trans Union and Metropol), with the expected entry of a 3rd one soon. The CRBs aggregate information about your credit worthiness and profile/list you positively or negatively. If you have never borrowed, then they will hardly have information about you which may be to your disadvantage.
Have you ever bothered to get your credit report from the CRBs? By law, you are entitled to 1 free credit report from the CRBs every year. Sometimes you may find you are negatively listed for a wide range reasons of which you are innocent; a bank account that you didn’t properly close and has run fees until they are negative, some impostor borrowed using your details or just about anything. It’s important to look at your credit listing to know your status.
Apparently, as a business person, you can also check the credit profiles of your potential debtors? There are so many businesses going down every day because they sold things on credit to people who will not pay.
Being a good borrower is an asset to you and your business. A lender will entrust you with what they think they can risk, say 500/=, if you repay they feel good and comfortable increase your profile to say 1k and so on. Even a shop keeper will only allow you to get stuff on credit from little amounts, then your window opens as you borrow and repay more. A friend told me sometime you can buy off bad friendships. Yes. You lend guys money to get rid of them. Those guys you know if you lend the 2k he so badly needs he will not repay. You still lend them because you know if he don’t repay then he will never come bother you again with another soft loan. Uh?
We no longer keep our money under the mattresses. Have a bank account and use it. Channel all the money you make there. You have seen businesses who have paybill options, these are linked to their bank accounts so the money goes there straight. This reduces the chances of money getting lost in thin air. It also acts as proof of payment if you pay for things from your accounts. But most importantly, your bank account is the primary point of reference from lenders to determine your capacity to repay. Before I lend you a loan which you will repay 10k monthly, I need to see more than 15k coming through your account. You can’t imagine how many people are looking for loans and when you ask them for a bank statement it looks blank. If your target lender wants you to provide a bank statement of 3 months then take your time and run a good 3 months on your bank account. Problem is, most entrepreneurs approach business as emergency. They want their money now. Asking them to upgrade their bank statements and come after three months is likely killing them. And true, most businesses would rather fold than work and wait the 3 months to get the money. Prepare early, get to know what your lender will require and work towards it.
What lenders look for in appraising your credit worthiness;
You want me to put money in your business? How much of your own money have you put into that business already? The amount you put into your business will show me your commitment and I know you won’t only risk money and run away. I have seen borrowers who are looking for 1M and when you look at their business they have only a stock of 20k and not more. But even capital doesn’t have to be in monetary terms. Do you possess the technical skills your business requires, do you have staff that can be able to deliver? How do you run your life, do I know where you live? That is why they ask you to draw a map. Then they might want to come see if you are who you claim to be. Picture this, a random colleague in your mjengo kibarua wants to borrow 2k. You don’t know where he lives and he doesn’t have a phone. Upon checking him out you discover he living light; sharing a ka place where he has no stove, no mattress and practically nothing. Would you be comfortable lending him the 2k? Isn’t such a guy just able to disappear without a trace?
Lenders will always listen to your story as you try to explain your need for their money, but in the back of their mind they are asking themselves, does this guy really have the capacity to handle the kind of money they say they want? Reminds me of our experience in college when the HELB came in. It was impossible for some guys to sit and concentrate in class when they have money in the account. Such money had to be reduced to a manageable level hence the drinking sprees in the first weeks of each semester. When you give borrowers more money than they need, some might lose their head a little and misappropriate it. Then both your business and theirs suffers.
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Nowadays the law makes it possible for you to use your moveable assets to secure small loans. So then, what do you have? How many goats, a motorbike, a laptop, a fridge, anything of value? You may not have a piece of land with title deed yet or a motor vehicle logbook but please don’t be that guy who just buys big phones and makes big parties without much thought to the future. Again, because you need that fridge to be a collateral in future, then don’t buy zile za deal. Don’t buy back door things that have no proof of ownership.
We all have friends who are already doing well in biz because they were supported by their relatives or even friends. How about you, your parents probably have a title deed, your brother probably a log-book, your friend is maybe even now looking for someone to partner with. Why wouldn’t they want to help you? Maybe it’s because of your character.
What are your values as person, are you trustworthy, are you faithful, are you committed etc? Do you have a proper character so as to show that you will put the money into proper use and most importantly be able to repay without trouble. Your character determines a lot if you will be able to attract funding for your business. How is your father going to give you that 50K if all you have been is trouble? Trouble through schooling, you don’t get involved in family matters, you get that IEBC kibarua and they never taste even a kilo of sugar? How now? How will your friends make you partner in their business if your fame is all about drinking sprees, conning people, not caring for your own family and stuff.
I have seen guys trying to borrow a loan and they can’t even raise 2 guarantors to just sign somewhere to say lend this guy I know he will pay? You are 30 years, have gone through schooling and life and can’t get even 2 guys to guarantee you? Then, you expect to come to my desk, I see you for the first time and entrust you with money? Just like that? You lie.
These are generally the terms on which you borrow which in most cases are stated in the letter of offer. The document which you have to sign witnessed by a lawyer. It outlines the features of the loan; the interests, fees and penalties applicable. Are you getting an asset finance loan to buy a machine, are you supposed to contribute a certain percentage of the money needed, are you able to repay the loan every month as agreed, what will happen If you don’t repay? All that goes into the letter of offer. Do you lend loosely without a written agreement? You are risking your everything. There are guys who will borrow and refuse to pay and the worst you will do is call @Mbusi and @Lion_de to complain on radio.
Thank you for reading. Would you have a suggestion on what we can write next? We’d love to write on your suggestions