The importance of loans to small businesses cannot be overemphasized. A small business is one with less than 500 employees. So if your business falls into this category, getting a loan at some point might be helpful.
There are several reasons why you need loans. From raising working capital to expansion, inventory to cash flow. However, one thing businesses forget is that taking loans helps to boost creditworthiness for the future.
In this guide, we will show you all you need to know about getting a business loan in Nigeria. Why not grab a cup of coffee and let’s walk through this guide together?
Where to look for business loans in Nigeria
Where can I get a business loan in this country? If you haven’t asked this question before, you know someone who has.
For many people, this is the most important part of getting a loan and we agree. If you know where to look, then you can find out about their criteria. We’ve done some research on your behalf so here’s a list of places you can look.
The first place to look for most people is a commercial bank. If you consider this option as well, you are not far from the truth. Many commercial banks in Nigeria have loan packages for SMEs. Top examples are Guaranty Trust Bank, Stanbic IBTC, First Bank, and Access Bank.
As you can tell, commercial banks are quite strict with their criteria. They will consider your business plan thoroughly checking for profitability indices and financial projections. More than anything, they want to know that you can service the loan.
Here’s our advice. Before settling for one bank, try a few to see which one has the best conditions for your business.
There are several initiatives designed by the government to make funds available to businesses in Nigeria. Some of these initiatives come up only once a year while others are constant. A few years ago we had YouWin, a program designed to assist budding and existing businesses.
Now you can get loans from NIRSAL MFB which is released by the CBN as a government initiative. Currently, you can access up to N25 million COVID-19 credit facility. This geared at supporting businesses suffering setbacks resulting from the pandemic.
N-Power also offers loans as well as training to young business owners. Let’s not forget the Bank of Industry as well. An SME can get up to N10 million from the BOI once the requirements are met. Government loans come with very low interest rates, unlike bank loans.
Many businesses complain about accessing loan facilities from commercial banks and the government. This need gave rise to a whole new industry, FIN-TECH Companies. These companies have grown in number exponentially over the last few years.
Now you can access a small business loan straight from your mobile phone. It’s that easy. Background checks are easier and criteria are less stringent. Here’s a list of quick loans you can take advantage of from FIN-TECH companies.
We should warn you that there are so many frauds out there. Be careful who you share your details with so you don’t get caught in the web.
These banks are very similar to commercial banks, the difference is they focus more on SMEs. As a result, interest rates are lower and the process is shorter.
A huge differentiating factor is that these banks are more lenient if you default. One of the most famous microfinance banks in Nigeria is Lapo Microfinance Bank. You will find a couple in your State of residence.
What do you need to get business loans?
Finding where to get loans is just one side of the coin. If you don’t meet their criteria, the knowledge is useless. Meeting the criteria tells the lenders that you can handle the responsibility of servicing the loan.
Truth be told, each body has its requirements. However, here is a list of common requirements:
The lender needs to know if you are the owner of the business or the business exists at all. Here is a list of documents you should prepare before attempting to submit a loan application.
– Title documents
– CAC documents
– Business plan
– Bank statement for between 6 months to 1 year
– Tax statement for at least two years (depending on how long your business has been in operation).
Most FIN-TECH companies don’t require these documents.
Credit Report History
In some cases, you will be asked to present old receipts. This is a way to check your credit report history. Your credit history gives a clear picture of the state of your business and how frugal it is.
Online platforms can generate this automatically when you submit an application. They use this to measure how much money they are willing to release to your business.
How to avoid lenders declining your loan application
It is not uncommon to hear entrepreneurs lament about declined loan applications. You may even fall into this category. While many businesses complain of this problem, many others get loans daily.
What do they do that you don’t?
– Submit loan applications early. This is very important if you plan to source loans from commercial banks or the government.
– Possess the required collateral. If you need a loan of N5 million, you need collateral in like amount. It is impractical to present collateral of N200,000 for such a loan.
– Act as a guarantor. Standing as a guarantor for other trustworthy loan applicants gives you a better chance of accessing loans.
– Maintain a high credit report. When you take loans, pay back on time. This assures the lender that you will pay up at the agreed time.
We cannot overemphasize the importance of loans to businesses. Before applying for a loan, it is important to know why you need the loan and state clear objectives. You must also define a payment plan that you can stick to. If this post has been helpful to you drop a comment below.