With the increased access to finance, many Nigerians have been able to obtain loans either through their own banks or through the many financial technology (FinTech) companies now operating in the space.
For most banks, access to the loan takes only a few steps while for fintech companies, within a few minutes, the customer account is the customer who applied for the loan. Although it is easy to apply for a loan now, it is also easy to end up with a huge debt burden that must be paid off.
With the Global Standing Instructions coming into effect, individuals and small businesses are being warned against taking loans that could become a burden on them.
The Director General of the Lagos Chamber of Commerce and Industry, Muda Yusuf, advised that as much as obtaining a loan can be beneficial to individuals and businesses, it should be taken with caution.
Be disciplined in spending
For individuals, it is a matter of spending discipline because getting into debt especially for the purpose of consumption is not often advised. Most of the time it is a lack of self-discipline that leads people to take on debt for the sake of consumption. As far as consumer spending is concerned, one has to limit it in the range of people gaining power. This does not mean living above your income and it takes a lot of discipline to do so.
Don’t be an impulsive buyer
There are also a lot of people who buy impulsively. They don’t have a budget, when they see something they like they buy it, sometimes they imitate other people. Women in particular, want to belong and not be left behind and before you know it, they are in very embarrassing debt.
Borrowing for investments
If the purpose is to invest and there is a proper analysis of the investment risks, then the individual can borrow and if it works out well, the investment returns can help to pay off debts which are economically reasonable.
Businesses need debt to grow, but borrowing is within your power
For companies, it is in business and any company that wants to grow cannot avoid debt. But again they have to measure the degree of debt they are incurring. The debt level should be something that is easy for the corporate entity to offer. If they incur debt because they don’t have cash flow, it could undermine the business.
Doing more equity than borrowing
Another way is to make sure you have more equity instead of borrowing. You have people who can invest in your business as shareholders. This does not mean that you lose control of the business, you are still the main shareholder, so you can sell 10 to 15 percent of the holding and use it to raise money to fund what you want to fund.