Securing a loan in Ghana can be a daunting task especially when you don’t have collateral. Traditionally, banks in Ghana require some form of security often a high-value asset such as landed property or a well-maintained vehicle.
Most banks prefer that the value of the collateral is at least 140% of the loan amount. This high requirement is set to cover not just the principal but also the interest and any associated costs in case the borrower defaults. However, this practice makes it difficult for many small business owners, entrepreneurs, and individuals who may not have access to such valuable assets.
Many potential borrowers in Ghana find themselves excluded from the formal credit system because they lack high-value assets. For example, a young entrepreneur starting a business may not own land or a car but may still need capital to get their business off the ground. Similarly, individuals looking to secure personal loans for education or medical emergencies may not have property to pledge. This creates a barrier to accessing loans especially from traditional banks.
However, there’s good news: if you don’t have property or a vehicle, you can still secure a loan by using alternative forms of collateral. Based on the provisions of the Lenders and Borrowers Act 2020, you can secure a loan if you do not have a reasonable collateral such as landed property or a vehicle using the following alternative collateral options according to the Lender and Borrowers Act 2020.
1. Account Receivables or Debtors
Account receivables refer to money owed to a business by its customers. Essentially, if you run a business and have issued invoices to customers who have yet to pay, those outstanding invoices can be used as collateral for a loan. This is particularly useful for businesses that have consistent cash flow but may experience occasional delays in payment from customers.
By pledging these receivables, you can secure a loan to maintain your operations while waiting for your customers to settle their accounts. However, it’s important to carefully manage this type of collateral, as your ability to repay the loan depends on your customers’ ability and willingness to pay.
2. Stock
If you run a retail or wholesale business, your stock can be used as collateral for a loan. Stock refers to the goods or inventory that your business holds for sale. By pledging your inventory as collateral, you can unlock funds to invest in expanding your business, purchasing more stock, or covering operational expenses.
For example, a clothing retailer in Accra may have significant stock in their store, but not enough cash flow to expand their business. By using the stock as collateral, they can secure a loan to open a new branch or launch an online store. However, you must be cautious, as fluctuations in inventory levels and market value can impact your loan.
3.Investment Certificates
Investment certificates, such as Treasury Bills and Fixed Deposit Receipts, are also accepted as collateral under the Lenders and Borrowers Act 2020. These financial instruments are considered secure because they are backed by the government or financial institutions. If you hold any of these investments, you can use them to secure a loan without the need for physical assets like property or vehicles.
For instance, if you have a fixed deposit at a bank, you can pledge it as collateral and access a loan to meet urgent financial needs. This is an excellent option for those who have savings but do not want to liquidate their investments prematurely.
