There is a popular saying that, ‘it is easier to seek a loan, but difficult to settle.’ Those who coined this expression must have been speaking from the point of experience.
People do all sorts of things and even compromise just to get loans. They, in the process, are not cautious in the clauses in the loans they want to seek, which are in most cases, the issue whenever repayment is to be made. Another germane point is to borrow for investment and you must be prudent in spending to repay your credit facility.
So, as an entrepreneur planning to get loan to start your dream business idea, caution is the word to adhere to, so that, you don’t carry debt that will continue to hunt you and your business for the rest of your life.
Similarly, you have to be prudent in spending to have enough buffer to repay your loans.
The former director general, Lagos Chamber of Commerce and Industry(LCCI), Muda Yusuf advised that, as much as taking a loan can be helpful for individuals and businesses, it must be taken with caution.
Hence, he said, he suggested that:
Spending Discipline
“For individuals, it has to do with discipline in spending because going into debt particularly for the purpose of consumption is not often advisable. Most times it is lack of self-discipline that leads people to incur debt for consumption. As far as consumption spending is concerned one has to limit it within the scope of ones earning power. That is not living above your income and it takes a lot of discipline to do that.
There are also quite a lot of individuals that buy impulsively. They don’t have a budget, when they see something they like, they buy, sometimes people copy other people. Particularly women, they want to belong and not be left behind and before you know it they are in very embarrassing debts.
Investment Borrowing
If it is for purpose of investment and there is proper risk analysis of the investment, an individual can borrow and if it works out well, the proceeds of the investment can help pay off the debt which makes economic sense.
For corporates, they are in business and any corporate that want to grow can’t avoid debt. But again they have to measure the degree of debt that they get into. The level of the debt must be something that it will be easy for the corporate entity to service. If they incur debt that they do not have the cash flow, to service it can bring down the business.
Choose Equity Borrowing Option
Another way is to ensure that you have more equity rather than going to borrow. Have people who can invest in your business as shareholders. It doesn’t mean you lose control of the business, you are still the major shareholder, so you can sell 10 to 15 per cent of the holding and use it to raise money to finance whatever you want to finance.
