Giving and taking business loans against collateral come with some basic and important rules in Ghana (unless it’s a ‘loan’ between you and a friend or family member or it amounts to no more than approximately $30). Apart from those two exceptions, here are 4 things to know before you enter into a loan arrangement as lender or borrower (individual or institutional) with an arrangement for collateral. These simple rules would look huge and hairy if you ignored them, and a loan dispute or default came up.
1. Register the Collateral
You must register the collateral with a government office known as the ‘Collateral Registry’. The law doesn’t specify whether it’s the lender or borrower who must register it. You have good (different) reasons to be interested in registering the collateral (as lender and as borrower). You can agree (at the time of negotiating) on who must register the collateral. If property meant as collateral isn’t registered, it will be void (as collateral), and the loan will stand alone, nude and unprotected.
2. Do It (Registration) Within 28 Days
You must start and finish registering the collateral within twenty-eight days after the collateral is created. If you miss this deadline (even if you’re in mid-process), the loan will still stand nude (as stated above). This may seem like a terrible event in your (lender’s) eyes, and may appear a lucky break for the borrower, because the borrower’s property is de-coupled from the loan. It isn’t a lucky break. If the collateral is void, the loan becomes immediately due and payable (no matter the intended repayment date). For example, a term loan of 5 years can become payable after only 2 months after signing, because somebody failed to register the underlying collateral.
3. A Debtor (Always) gets 30 Days More to Repay
If your loan-recipient fails to pay you back on time, you’d imagine that you could take and sell the collateral immediately, no? Well, no. Why? You must first give some breathing space (and a last chance) to the borrower. You have to tell them that you’re giving them thirty days to come good. This thirty-day notice period must pass before you can take any steps to recover your money.
4. You Don’t Need a Court’s Help to Grab the Collateral
The biggest sweetener in the pot is probably for the lender. When ‘your’ borrower fails to repay on time, and they miss the thirty-day notice period, you can take the collateral (whatever its nature) without a court order. You’ll save time and costs. It helps to get the help of the police though.
What experiences have you (or your company) had with loan defaults, whether as lender or borrower?