May 27, 2019





Finance Current Assets or meet payments on expenses. This is a credit facility which allows the borrower to draw, within a specified tenor usually not exceeding 12 months, agreed amounts in excess of the credit balance in the current account with the bank. Also referred to as a credit facility provided to finance short-term shortages in cash or working capital needs typically not exceeding 12 months. It works by allowing the obligor draw funds over and beyond their credit balances but limited to a specified amount.

It is used to finance current assets or meet payments on expenses. An assessment of working capital needs is normally carried out. Overdraft is susceptible to the same risk the business entity is subjected to i.e., inability to complete asset conversion cycle (ACC), business risk, industry risk, production, collection, macro-economic risk, demand, supply and diversion risks.

Overdraft Facility (ODF) vs. Temporary Overdraft Facility (TODF)

  • ODF –  Maximum tenor of 12 months
  • TODF – Maximum tenor of 30 days

Features and Benefits

  • Overdrawn current account by the obligor is permitted but not exceeding the approved limit
  • Maximum tenor of 12 months
  • The bank earns interest income at the agreed interest rate on average daily debit balances
  • The bank secures its position with adequate collateral
  • In-built mechanism to achieve occasional swings
  • Availed to only customers that operate and achieve the required transaction volume i.e., turnover or activity
  • Overdraft facilities are repayable on demand
  • Requires rigorous analysis of the borrower’s cash conversion cycle and financial statements

Documents Required

  1. Facility Request Letter
  2. Minimum of 6 months turnover analysis in Wema Bank or other bank(s)
  3. Account swing analysis for 6 months
  4. Maximum availability of 70% execution cost (subject to exceptions)
  5. Turnover covenant (minimum of 100% of facility amount per month)
  6. Provision of tangible security (where applicable).
  7. Confirmation of LPO for genuineness
  8. Pro-forma Invoice for goods to be supplied
  9. Confirmation of Irrevocable Domiciliation of proceeds from LPO issuer
  10. Customer’s contribution (30% minimum of cost of execution)
  11. Counterparty information (LPO issuer)
  12. Profitability Analysis
  13. Terms of payment
  14. Track record


The Ideal product for Finance Asset acquisition. This product is designed to finance asset acquisition, general capacity expansion and long-term financing needs may also be used for specific expansionary purpose or clearly identifiable cash outlay of specific amounts.

Issues to consider include determining the source/mode of payment, installments in line with obligor’s capacity/turnover etc. Term loans may be short term (up to 1 year), medium term (1 – 5 years) or long term (above 5 years).

Project Finance represents loans in which the primary revenues generated from it act as both the source of repayment and security for the exposure. This type of financing is usually for large, complex and big-ticket projects.

It is principally a form of ‘Non-Recourse’ or ‘Limited Recourse’ financing, whereby the bank bases its credit decision solely or primarily on the cash flows of the project, with respect to repayment of the project debts.

These Projects might include:

  • A power generation project
  • A mass transit project
  • A telecommunications local services, long distance and value-added project
  • A power transmission or distribution project by laying a network of new transmission or distribution lines
  • A petroleum extraction, refinery, pipeline project

Key characteristics: moratorium period (where applicable), a thorough feasibility study, disbursement patterns, monitoring, use of a qualified project manager, experienced business managers etc.

Associated risks include Cost overrun, over/under estimation of cash flows, and repayment typically hinged on the success of the project.

Features and Benefits

  • Mortgage loan

Mortgage loan is a loan secured by real property through the use of a document which serves as evidence of the existence of the property through the granting of a mortgage which secures the loan.

  • Margin loan

Margin Loan is a loan that allows the customer to finance against shares. The term margin refers to the difference between the market value and the cost of the shares. The primary and secondary sources of repayment are from the sale of the securities purchased.

  • Object Finance

Object Finance is a method of funding the acquisition of physical assets (e.g., ships, aircraft, fleets, etc.) where the repayment of the exposure is dependent on the cash flows generated by the specific assets that have been financed and pledged or assigned to the lender.

  • Real Estate Loan

Real Estate Loan also known as Income producing real estate is a loan provided for funding of real estate (such as, office buildings to let, retail space, residential buildings, industrial or warehouse space, and hotels) where the prospects for repayment and recovery on the exposure depend primarily on the cash flows generated by the asset. The primary source of these cash flows would generally be lease or rental payments or the sale of the asset.

  • Commercial Real Estate Loan

Commercial Real Estate Loan also known as High-volatility commercial real estate is the financing of commercial real estate that exhibits higher loss rate volatility (i.e., higher asset correlation) compared to other types of specialized lending.

  • Bankers’ Acceptance

Financial instrument or bill used in financing short-term trade obligations or asset-based self-liquidating credits whose tenor must not exceed 180 days.

BAs are used to finance underlying trade transactions (local or foreign). Associated risk includes primary obligor and improper matching of repayment to maturity.

Issues to consider:

  1. Identification of the underlying transaction with the title being held as collateral by the bank
  2. Acceptance must be by physical instrument in the form of a draft supported by signed agreements
  3. Investors should know the issuers of the draft


  • Commercial Paper

This is a form of financing structure that allows the bank to directly match a surplus entity to a deficit entity. Unlike Bankers’ Acceptances, this creates only a secondary obligation on the part of the bank, if guaranteed.

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