For any financial institution to lend you the money you need, you must prove the viability of your business because these institutions are out to invest in businesses that guarantee returns just like you are.
According to Kenya Women Finance Trust Operations Director Antony Chege, real estate projects are some of the biggest reasons why people run to financial institutions to acquire loans, but are unknowingly some of the trickiest to finance.
“The hidden truth about real estate is that return on the money is not always reliable. A place may be an ideal place to have a real estate project today but problems such as insecurity down the line could make the project one that no one wants to rent at or even buy. This makes repaying a loan taken on such a project a big problem,” he explained.
Hence, when taking a loan to finance a real estate project, think with the long term in mind. Chege says that if a project is to thrive, consider the past issues that have affected the area and use that to project what the future might hold, no matter how difficult that maybe.
Real estate is however not to be entirely demonized. If the project is in a prime area that could lure both residential and commercial occupancy, then such projects are easier to fund.
Take the properties along the Thika superhighway for example. The development meant investors took quick interest in the area setting up shopping malls, apartments and supermarkets among other social amenities.
Same goes for places like Kajiado where real estate companies are setting base.
George Wachiuri, the CEO of Optiven Limited explained that his reason for acquiring the Kajiado property that Optiven developed and put on sale was because of the expected shift in where to live and the current changes times.
“With the ongoing development in the country, Nairobi has been expanding day by day. Hence places like Upper Hill are now considered to be part of the Central Business District. The case is the same with Kajiado which is rapidly opening up with social amenities finding root,” he explained in an earlier interview.
These then, are the kind of projects that banks will willingly finance due to the ongoing changes.
Where then do banks prefer putting their money into?
“Agribusinesses are among our favourites,” said Chege. In his words, people need food constantly, which makes it a viable place due to the somewhat assured returns.
Chege also explains that financial institutions also like financing small businesses because the risks are spread out. This is unlike big projects that may require huge chucks of money which puts the risk at the same basket.
“We however do not rule out big projects as the bigger they are, the more the returns obviously,” he explained.
I then ask him the million dollar question that every person seeking a loan is always curious to know, why are lending institutions so bitter when it comes to reclaiming their money?
“We really are not bitter. It just depends on the customer’s willingness to open up about their ability to repay the loan. If someone comes to us and admits their inability to pay the loan they secured within the time we had agreed on, then we can go back to the drawing board and renegotiate,” he says.
Chege explains that the problem with a majority of people however, is that they do not come clean and they try to ignore the bank.