Basic Banking And Credit
Decisions
COVENANT CAPITAL
© Covenant Christian Centre Covenant Capital Unit
1
Course Goals
 Why develop a banking culture?
 Types of banking accounts and how businesses
should determine their account choice type.
 Financial Management, raising Capital and what
lenders look for.
 How credit works and the cost of loan.
© Covenant Christian Centre Covenant Capital Unit
2

They help keep your daily financial records which serves as a point of
reference for potential lenders or business partners.

They help secure your cash

They could assist in funding your business

Some banks provide financial advisory services
The key is finding the bank that's right for you, with the right combination of
products, services, costs and convenience. But one basic thing you should have
in your mind is that banks are profit-making institutions.
© Covenant Christian Centre Covenant Capital Unit
3
A Range of Bank Services
When you use a bank, you receive regular statements that tell you how much
you have in your accounts, what bills you've paid, and how much interest
you've earned.
You may qualify for a credit card.
If you need money to rent a home or to expand your business, you can apply
for a loan.
And if you're ready to invest, you can do that through a bank too.
Banks provide detailed information about the accounts they offer, which they
update each time they make a change. Visiting the local branch office of a
bank or their website should provide you with a good overview on what
products and services they offer, along with their costs.
© Covenant Christian Centre Covenant Capital Unit
4

Keep track of your accounts by checking the monthly statements you receive.
You'll want to compare the bank's record with your own records to be sure all the
transactions recorded tally.

If you have a loan, you are responsible for making payments on time.

Ensure that you understand the features of the products you are buying
© Covenant Christian Centre Covenant Capital Unit
5

The unbanked are people and businesses that have up to 50%
of their cash transactions not routed through a bank.

The disadvantage of falling into this category is that the bank
will always underestimate your capacity as an entrepreneur
and this is very important to their partnering with your
business goals.

If you are ever thinking of getting any financial assistance for
your business growth, jump out of this bus with the speed of
light.
© Covenant Christian Centre Covenant Capital Unit
6
Financial Management

No matter how good your product or service, or how effective your
marketing is, if you don’t have good financial controls in place,
your business is far less likely to succeed than one that runs its
finances well. That’s because you can usually project your
expenses, or what you will have to pay out, but cannot always
predict your revenue, or the money you have coming in.

Carefully monitoring your expenses, as you do with a household
budget or personal checking account, should be one of your
primary concerns as a business owner.
© Covenant Christian Centre Covenant Capital Unit
7
Raising Capital




Many businesses fail, often within the first two years, for one simple reason: they
are undercapitalized, or simply have not obtained enough money to get their
business started or make it through some rough patches. So raising enough
money, or capital, to start, maintain or expand your business is always a top
priority.
The major issue with capital is that most entrepreneurs are usually very
optimistic and always fail to consider every aspect of cash involvement before
venturing into business.
You need to factor all your personal ‘’hygiene’’ cost also……. (Na power dem
take dey blow fire)
One rule of thumb is that when you start a business, you should have enough
cash on hand to operate it for a year. And you should have enough to pay
yourself a salary. If you don’t have income from your business, you won’t be able
to pay your personal bills.
© Covenant Christian Centre Covenant Capital Unit
8
If
you borrowed part of
your capital, paying back
counts, too

If you have to pay back too much of the capital you’ve raised within a short time,
or if the interest you’re paying on the amount you borrow is very high, you may
find that too much of your money is going to repay the loan rather than keeping
your business going.

If you are borrowing part of your capital, always consider the moratorium period
and also the entire repayment plan.
Always remember that the cash conversion cycle of every business differs… if u take a
square loan for a round business, be ready to meet me in EFCC…
© Covenant Christian Centre Covenant Capital Unit
9
What lenders look for
1) CHARACTER
2) CAPACITY
3) CAPITAL/CASH
4) COLLATERAL
5) CONDITION
© Covenant Christian Centre Covenant Capital Unit
10


For most people, using credit is an essential part of daily life. You might already
use credit — through credit cards or a loan — without knowing exactly how it
works. While it's easy to do that, you'll want to learn as much as you can
regarding this very important subject.
Credit, or the ability to borrow money, can be a powerful tool in reaching your
financial goals. Or, it can be a hidden enemy for those who do not have a
spending plan or do not develop and maintain responsible credit management
behaviours and skills.
© Covenant Christian Centre Covenant Capital Unit
11

Most times, a lot of people apply for credits without really knowing why
they need it. Basically, a credit could be obtained;
1.
To finance fixed asset
2.
To breach the gap between sales and actual payments.
3.
To increase working capital; this should only be taken when the
entrepreneur has observed that more capital is directly proportional to
an increased percentage in income. Else, the cost of the loan might just
wreck the business.
© Covenant Christian Centre Covenant Capital Unit
12
How credit works

Chances are you're familiar with credit. It's a convenient way to make
purchases — from small, regular ones like groceries to large, unique
ones like homes or cars. But you may not be sure what happens when
you use a credit card or take a loan, the two most common examples of
using credit. Learning more can help you cut costs and avoid using
more credit than you can afford. For regular business, it is better never
to exceed the 1:1 credit/equity ratio… There are definitely exceptions to
this.
© Covenant Christian Centre Covenant Capital Unit
13
The cost of using credit
When you use credit, you're borrowing someone else's money. You agree to pay it
back at a certain time, or on a certain schedule. And for the convenience of having
someone else's money available when you need it, you pay a fee. That fee is
known as interest and is usually charged as a percentage of what you borrowed.
That means the more you borrow, the more you'll have to pay in interest. What
borrowing will cost you is also affected by how long it takes to pay the money back.
© Covenant Christian Centre Covenant Capital Unit
14
Paying on time

With most types of credit, you agree to make payments on a certain schedule,
and if you're late or don't pay what's due, you'll have to pay a penalty or late
fee. That makes borrowing more expensive. If you have trouble repaying, it's
possible that you've borrowed more than you can afford, or perhaps your
circumstances have changed. And if you ignore the problem, it will only get
worse, as penalties and interest build due to late or missed payments.
© Covenant Christian Centre Covenant Capital Unit
15
It probably seems natural that a potential lender would
scrutinize your background and financial history before
choosing to extend you credit. But you can be selective,
too. It's important that you research the terms of the loan
you're being offered, to make sure that the lender, its
products, and its services also fit your needs.
One of the best ways to weigh different loans is by
comparing the cost of borrowing the money, which
includes the interest rate you're offered and any fees the
lender charges. A simple way to compare the combined
cost of interest and fees is by checking out the loan's
annual percentage rate (APR), which tells you the
percentage of the principal you'll have to pay on a yearly
basis for the privilege of borrowing.
© Covenant Christian Centre Covenant Capital Unit
16
Comparing costs

Shopping around might produce a lender who is willing to offer
you a better deal. It can help to check with your bank or a
lender you already have an account with, since they might offer
better terms or a small discount to current customers.
TIP 0% Interest ?

What if you're offered an interest-free loan? That can be a really
good deal, because you can pay for something over time
without a finance charge. But you'll want to be careful you
understand the terms. For example, with some interest-free
loans you risk having to pay a substantial fee plus the
accumulated interest if you're ever late with a payment — even
if it arrives only a day or two after the due date.
© Covenant Christian Centre Covenant Capital Unit
17
Truth in lending
Every lender you're
considering is legally
required to give you the
following information
about your loan:
1) Upfront Finance Fees
2) Monthly Interest Rate
From these two, you will have
to determine your
Annual percentage rate
(APR),…. Always compare
this rate to the profitability
of your business.
© Covenant Christian Centre Covenant Capital Unit
18
THANK YOU
Questions….
© Covenant Christian Centre Covenant Capital Unit
19