Commercial banks generally provide company loans in Nigeria and it represents a large proportion of their loans portfolio. It can be used to acquire fixed assets that have fairly long life such as major plant and machinery, and to fund the purchase or construction of buildings.
Factoring is a continuing arrangement by which the factor purchases all the trade debts due to a business as they arise, providing a sales ledger accounting service and thus relieving the businessman from the intricacies and sometimes unpleasantness of debt collection.
In this way effective accounting of trade debts is achieved on the one hand and cash flow for operational needs is provided on the other. The factor may make an advance payment of 90% of the net invoice to the company at the time the invoice is raised, for a small financial charged. Otherwise, the factor could pay an agreed amount on a specified date, which will be more effective than the company’s usual debt collection system.
Invoice discounting is related to factoring. In fact, this service is usually provided by factoring companies.” invoice discounting is the purchase of a selection of invoice at discount”. Unlike factoring, it is one-off transaction for a specific transaction and a particular point in time. It can be referred to a “confidential or undisclosed factoring” as it is arranged in such a way that the importer may not be aware of the existence of a factoring house. In effect, the importer still makes payment to the exporter. It becomes the duty of the exporter to settle his indebtedness to the factoring or discount house.
Another distinguishing factor of invoice discounting and factoring is that the former relates to financial service aspect of factoring; no other facility is offered and thus the exporter handles administration and credit protection services. He maintains his own sales ledger and, of course, responsible for any bad habit. Furthermore, while factoring is preferable for large organizations with high turnover, invoice discounting is more appropriate for small businesses. This has the effect of eliminating the disadvantage of factoring to small exporting country as discussed above.
A hire purchase arrangement is a good source of finance. By the operation of the purchase agreement, an initial down-payment is made in respect of the asset, and with the payment of regular instalments on both capital and interest, ownership of the goods is acquired at the end of the final payment. In some cases, an `option to purchase’ fee may be paid before ownership to the assets is finally acquired.
The hire purchase company remains the legal owner of the goods before the final option is exercised. Any violation of the hire purchase covenants could lead to forfeiture of the purchaser’s interest in the goods.
Under instalment credit, ownership of the goods is obtained from the onset subject to the purchaser meeting the regular instalment payment. For this arrangement, the lender’s security is the written promise to pay the agreed instalments, for which, preferably, a banker’s standing order is instituted.
Providers of Company loans in Nigeria