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Kampala, Uganda | THE INDEPENDENT Businesses should desist from putting their main income generating assets as collateral to get loans from banks, an expert has said.
Sarah Mbinji, an International Finance Corporation trainer, said on Wednesday that using your cash-cow asset as security to get a loan would be akin to suicide. This means, she said, that if anything goes bad and that security is taken, that would be the end of the business.
Mbinji was speaking in a virtual meeting organized by the IFC and Uganda Bankers Association on how businesses can access money in the times of crisis like these.
Most borrowers use land, cars, and commercial buildings as their stake to get bank loans. However, if a company depends on these assets as the main source of income, it should never be put up as collateral.
As the country emerges from Coronavirus (COVID-19) lockdown, cash-strapped businesses are expected to go on the hunt for money to resuscitate their businesses. What to put as security to get this money is one of the decisions that managers will have to make.
Mbinji says a business should not apply for a loan just for the sake of it. There has to be a need. It can be to increase stock, improve cash flow, or but equipment.
She said business should not just look at banks as a source for money. Other channels like personal or business savings is an avenue company should emphasize on going ahead. “Companies must save for the hard times,” she said.
She said friends and family can also be a cheap source of funding than the bank as long as the borrower is open and makes good of their promises.
Patricia Amito, the head of communications for bankers’ association, said banks are cutting interest rates and restructuring loans to give borrowers flexible payment terms. She said businesses and individual borrowers should take advantage of that.
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