Want a home loan? here is the secret

NAIROBI, KENYA: Samson Simbiri is a 27-year-old entrepreneur from Kisumu specialising in printing school identification cards.

Having seen the ups and downs of the printing business where you have to get big tenders to make a meaningful profit or suffer at the hands of public institutions which take long to pay, Simbiri decided to venture into the recycling business, which is slowly catching on in Kisumu.

The only thing that stands between him and his new vision is the huge capital investment he needs to get his business off the ground by acquiring a piece of land, constructing the premises and buying raw materials.

Simbiri approached the Kenya Industrial Estates to access a youth loan. Having failed more than once to have his request for a Sh250,000 loan approved, he approached the credit officer of the institution and asked for the ‘secret’ to getting one’s loan request approved.

He was told the secret was to show that you have an active business. And showing you have an active business did not necessarily have to involve a large amount of money.

According to a recent report by The Mortgage Company, small business owners are ignored by lenders when seeking mortgage loans and in some cases completely shut out as banks prefer salaried clients.

 Relationship

An active account, besides showing you have a business that is up and running, creates a relationship with your bank. Relationship banking involves marketing of various financial products to customers by increasing total assets and subsequently total revenue per customer.

The relationship is symbiotic. Patrick Wameyo, an investment lecturer at Kenya School of Monetary studies, refers to it as a give-and-take relationship.

Through this relationship, a customer gains trust from a bank to meet their financial obligations. The stronger the bond of trust, the more financially beneficial it becomes for both parties.

“Banks need to understand what you do, how long you have been banking with them and your financial status. This can only happen when you play an active role.

Growth of your account will determine your relationship over time, but having a long history in the process helps just as much, regardless of the level of growth,” says Wameyo.

Having worked in the banking industry for over 25 years in various departments, Martin Dias, now a financial property consultant and CEO of Financial and Property Consultant Limited, knows his way around the banking industry and how to get banks to give his clients mortgage loans.

At some Banks, he discovered a discreet procedure for evaluating a loan request. It was abbreviated simply as Campari, like the alcoholic drink, he says. Campari stood for Character, Ability, Margin, Purpose, Repayment and Insurance and was to be followed in that order.

It comes as no surprise that character makes it first on the list of what to evaluate. “Banks do not care whether you have parked a Mercedes outside when you come looking for a loan. That would classify as insurance (security), which is the last thing they look at,” says Dias.

He adds: “They want to know first and foremost who you are. What type of business are you in. This can only be achieved if you have an existing account with them so they can evaluate your bank statement.”

As Dias explains, banks can tell a lot about you from your bank statement, including how financially disciplined you are.

“Banks want to see how ambitious you are. If you are a small business owner looking for a mortgage, do you have a business projection of your business? How are you using your limited cash flow? Are you disciplined in your spending? Those are some of the things your financials and bank statements reveal,” says Dias.

 Ability to pay

Ability to pay is also a major factor. As Dias puts it, you cannot ask for a Sh2 million mortgage with a basic salary of Sh30,000 because that means you will be taking home nothing as a 15-year mortgage loan for Sh2 million costs about the same amount in monthly repayments.

As Dias explains, it is not just a matter of opening a bank account with a particular bank, it is a matter of which bank you are banking with also.

According to Wameyo, there are various categories of banks that people need to look out for depending on the type of services they want.

The purpose for which you are seeking the mortgage is also important. If you are in the SME sector, why would you need a Sh20 million mortgage for a four-bedroom bungalow yet you may only have a family with one child?

Repayment should match ability and has to be comfortable and easy for the client. There has to be a steady flow of income and in the case of SME owners, there has to be a minimal amount coming in over a given period to guarantee payment.

Insurance, otherwise known as security, has to be adequate. The bank statement of the client can be used to bargain for a higher mortgage loan or a reduced interest rate.

“Most small businesses fail within the first five years. If yours has grown instead after five years, you are much more valuable to your bank. Ask them for more loans or a reduced interest rate by presenting your financials,” says Dias.