So you've spotted the car of your dreams, you want to buy (or build) property or your business is in need of some cash injection and you need a loan. You approach your lender of choice and they insist on security. You have a piece of land you are willing to offer as security or have someone who would agree for you to borrow against their land; well here’s a guide on the steps you are likely to follow (the procedures may vary from institution to institution):

1.  Assessment

You have to qualify for the loan in the first place. The lender decides on this by carrying out an assessment which may or may not entail a physical visit to your place of business, home or farm and you filling some forms depending on the type of loan and the institution’s credit policy. The purpose of this is to convince the lender that the borrower is in a capacity to pay back their money; they are not in the business of charity you see. Most lenders are guided by a 5 point indicator in deciding whether a customer qualifies for a loan:

a)      Capacity – how does the borrower intend to pay back the loan? The lender seeks proof of income from business, salary, pension or any other source and this income must be sufficient to service the loan regularly.

b)      Capital – rarely will any lender offer 100% funding; the borrower must have invested some capital in the project as well.

c)       Collateral – what is the value of the security offered for the loan? Can the proceeds from its sale cover the debt?

d)      Conditions – these are the factors existing at that time that might impact the business performance (positively or negatively) such as competition, legal regulations and market trends.

e)      Character – the lender must be convinced that the borrower is honest and trustworthy. This is where the credit history comes in to help determine if the borrower will honour his pledges and pay in time.

2.  Official Land Search

Once the borrower qualifies for the loan and provides the title for the piece of land, he is required to request the local Land registry office to conduct an official search to ascertain as to the existence and ownership of the land and that it is free from any encumbrances. This is done at a fee of Ksh.500.

3.  Application for Consent of the Land Board

The borrower is then required to apply for the consent of the local Land Board to charge his title. A ‘charge’ is defined in the Registered Land Act as “an interest in land securing the payment of money or money’s worth or the fulfilment of any condition, and includes a sub charge and the instrument creating a charge”. Basically it means the lender will keep your title until you have fully serviced the loan.

A form, ‘Application For Consent of Land Control Board’, is filled in triplicate and submitted to the Land Board at a fee of Kshs.1000. If consent is granted, the board gives the borrower a ‘Letter of Consent’ in duplicate.

4.  Charge

A charge document is prepared and copies of this and the preceding documents are deposited with the relevant land offices as well as the lender retaining copies for registering and filing. The title is now handed over to the lender and the amount borrowed disbursed.

5.  Discharge of Charge

After the facility is fully serviced, the borrower applies for discharge of the charge and fills the discharge form which is submitted to the relevant land office at a fee of Kshs.1000. This facilitates the cancellation in the register of the charge.

Some institutions encourage their customers to bypass this step if they intend to take further loans to save them the hustle of having to repeat the process afresh. Once the land is charged at the lands office, it is considered so until a discharge document is presented and therefore the customer can take subsequent loans on the same charge provided the amount borrowed can be covered by the charge. If not, additional charge may be required.

Power of Attorney

This comes in when the borrower wishes to borrow against the land of another party. The owner of the land disposes of his interest on the land to the borrower. The borrower can then charge the title as security for the loan facility. If the borrower defaults in payment the land can be sold to recover the debt.