Thinking of getting a loan can be very exciting until you begin to know the requirements involved. Many business owners avoid this path due to how tasking it can be. Let me start by mentioning that loans are one of the ways to fund your business.
A lot of organizations big and small collect bank loans at some point in their business. However, some people say that the stress involved in getting a loan surpasses the benefits it brings, I do not subscribe to this school of thought. However, below are the requirements for getting a bank loan in Nigeria.
Your business would need to provide collateral for the loan applied for, it could be landed property, asset or even your personal guarantee. Not only are they going to want collateral but they will want the right type of collateral. Sometimes they remember to register claim to these collateral in the court and when they don’t, they stand a risk of loosing claim to the assets in times of default. Small businesses most at times have no property to put up as collateral, but that does not mean they can’t take loans.
This means that most small business owners would have to pledge personal assets, make no mistake banks are very meticulous in inspecting property put up as collateral so as to reduce the level of risk on their side. Nowadays there are loans that do not require collateral and the process not as tedious as collecting directly from the bank, some are even accessible online such as Aella credit, kuda, Okash, Palmcredit, creditdirect amongst others.
2. Business plan
There are exceptions but the vast majority of commercial loan applications require a business plan document. Nowadays, it need not be overly comprehensive but substantial and it must, however, maintain the important components of a standard business plan. The business plan is necessary because the banks want to know that you have a viable and sustainable business before granting you a loan. To assess their viability, they look at all aspects of it. Your financial projections are key- a good business plan will include several years’ worth of past revenue and profits of three to five years for an already existing business, this is very important. They need to evaluate if you will have the money to pay back the loan. Check out How to write a business plan for a bank loan on Liveplan.
3. Financial details and reports
This should include all current and past loans, debts incurred, all bank accounts, credit card accounts and of course supporting information including tax ID numbers, addresses and complete contact information also the complete details on accounts payable and receivable. In the case of bigger organizations audited statements would be required. With this information they can evaluate how capable the business is of paying the sum, this also determines if they get the loan or not. Be keen on your credit score at least strive to maintain a credit score above 700 to impress the banks enough to collect a loan.
4. Personal financial details
Asides the financial details of your business they would also require your personal financial details because most a times when it comes to cases of small businesses the owner would sometimes return the loan from his pocket. Trust me banks want to know everything, from your net worth to details of your assets and liabilities such as your vehicles, credit card accounts, mortgages, houses, investment accounts you name it.
For businesses with multiple owners, the banks would require the details of all the owners who have significant shares.
5. Loan application and specifications
Before now it is expected that you have a stipulated amount in mind. Banks would try to access how the loan applicant wants to spend the funds borrowed. They are expected to ask every question prior to lending the money to avoid the unfavourable circumstances surrounding the failure or inability to pay back what’s owed. Sometimes loans are qualified by the intentions of the applicant, for example, equipment loan. However, it is advisable to apply for a short term loan if you need it to keep your business running pending when debtors pay up.
Before embarking on this journey please be sure you need this loan and try to avoid taking more than what is needed at the time. It is important that you are properly informed prior to the time you might want to get a loan for your business.
However, dear aspiring entrepreneur before looking for a bank loan consider less capital intensive business ideas. Check our article on 20 businesses you can start with little or no capital and make a more informed business decision. Read more articles on sme360, we have all your answers concerning your small business in Nigeria.