Have you been searching for information on how to get a loan for small businesses in Nigeria? Read along with me and find out how.
People usually start businesses using money they have saved, as well as donations or loans from family and friends. When money from these sources does not grow a firm, the owner needs to look for other sources of capital.
Getting a small business loan in Nigeria is a big difficulty for most small businesses because of a lack of proper credit facilities for small business owners and entrepreneurs, but the more information you have, the easier it will be.
What is a Loan?
A loan is a financial transaction in which someone or more individuals, establishments, or other entities lend money to other persons, establishments, or entities.
The person who receives is also known as the borrower, incurs a debt and is usually responsible for paying both interest and the principal amount borrowed until the obligation is repaid.
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3 Ways to Get a Small Business Loan in Nigeria
Below, I summarize the most essential techniques and ways that a small business in Nigeria might get a loan:
1. Financial Institutions and Banks
Individuals who wish to start their own business but don’t have the requisite funds may seek help from banks. Banks and financial institutions assist small enterprises and firms at almost every stage of their growth.
If your business concept, expected returns from the firm, ability to repay the loan (through business or otherwise), management experience and competence, and other securities given satisfy them, a financial institution will grant you a small business loan in Nigeria.
Although most bank loans have a high-interest rate, you should do your research and compare the many business loan options accessible to small businesses from Nigeria’s major banks. Make sure you understand the terms of the loan agreement and are convinced that you will repay the loan within the set time frame before picking which choice to choose.
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2. Government Loan Schemes
Government-sponsored loans are usually more cost-effective. Therefore, it’s only wise that small and expanding businesses always opt for them.
The Nigerian government’s SME loans go a long way toward assisting SMEs. The funds are used by small firms for day-to-day operations, growth and expansion needs, and infrastructure expansion.
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3. Loan Service Providers
We have all been in a situation when we needed money immediately away to deal with an emergency. What should you do if your bank loan takes a long time to process? Internet loan services might help you out in this situation.
Small enterprises and individuals in Nigeria now have access to quick and low-cost short-term loans, all thanks to FinTech. Firms like Carbon Paylater, Renmoney, KiaKia, Palmcredit, C24 loan, and Quickcheck are just a few of the private companies that provide short-term finance.
Quick loans can now be applied for online and received in as little as 24 hours. This form of financing is only available for a limited time (3–6 months). It just has a small quantity of money to work with. It may, however, be your best choice for quick cash to fulfill a customer request or replenish your inventory.
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How You Can Get a Small Business Loan From The Bank
In learning how to get a loan for small businesses in Nigeria, there are five fundamental actions you may take to increase your chances of getting a bank loan and expanding your company.
- You need to understand why banks give loans in the first place. Banks lend money hoping it will be repaid. A bank will not lend you money unless you can show that you have a good business plan and that you will spend the money according to the plan’s instructions.
- Second, they consider your reputation. If you have a history of not repaying debts or issuing bounced checks, most banks will not lend you money.
- Is there a good accounting system in place at your company? Many banks won’t lend to businesses that don’t have a well-organized and exact accounting system.
- Are you knowledgeable in your field? It is easier to persuade a bank to lend to you if you can show that you have a thorough understanding of the industry in which you operate and the value you add to that sector.
- Do not undervalue the importance of perseverance. Many small business owners simply apply to one or two financial institutions. They abandon their goal of securing a loan after being rejected. It’s critical to recognize that banks specialize in certain industries.
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6 Government Loan Schemes Available for Small Businesses in Nigeria
Through the following established entities, the Nigerian federal government primarily aids small and medium-sized enterprises in their development:
- The central bank of Nigeria (CBN)
- Bank of Industry (BOI)
- Bank of Agriculture (BOA)
- Small and Medium Enterprises Development Agency of Nigeria (SMEDAN)
- Development Bank of Nigeria (DBN)
- Nigerian Export-Import Bank (NEXIM)
A number of other Nigerian banks and financial institutions work with the government to provide small company loans. They do so through government-sponsored financial programs such as YouWin, which are administered by NASIMS.
These government-sponsored funds are typically given as a grant or a low-interest loan. Because you’ll be competing against a bunch of other business owners, getting one will be exceedingly challenging.
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4 Federal Loans Available for Small Businesses
Depending on the organization and loan type, lending terms and interest rates vary. The following are some of the current federal government loans available to small enterprises in the United States:
- Creative industry Financing Initiative (CIFI Loan)
- Anchor Borrowers Programme (ABP) Intervention for Agriculture
- MSMEDF Loan–Micro, Small, and Medium Enterprise Development Fund
- Accelerated Agricultural Development Scheme (AADS Loan).
We also have grants for small businesses and a world bank grant which you can explore too.
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3 Basic Things to Consider Before Applying for a Loan
There are a few things that those who desire to apply for loans ought to be looked into beforehand. They are as follows:
1. Your credit score and history
If someone has a solid credit score and history, it shows to the lender that he is able to make timely payments. What this implies is the higher the credit score, the likelier the individual would be authorized for a loan.
Someone with an exceptional credit score also has a better chance of obtaining favourable conditions.
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2. Income
Another factor that should be put into consideration before you apply for any type of loan is an individual’s income. Pay stubs, W-2 forms, and a wage letter from their establishment have to be submitted by an employee.
If the applicant is self-employed, however, all he needs to submit is his tax return for the previous two or more years, as well as any invoices.
3. Monthly obligation
A loan applicant must put into consideration their monthly obligations as well as their income. For instance, a person could earn $6,000 per month but still owe $5,500 in monthly responsibilities. Lenders are likely to lend to such people.
It’s due to this that most lenders desire applicants to detail all of their monthly expenses, which also include rent and utility bills.
Key Requirements To Access Loans in Nigeria
Here are some of the key requirements for small businesses to access loans in Nigeria:
1. Verification Process
It is critical that the lender inquires about the individual’s identity. This is a popular example:
Could you please verify your BVN?
Please double-check your address.
Is it possible for you to confirm your phone number?
Cross-referencing information from the application form should be possible for the lender. This is a fast check that just takes a few seconds, but it prevents the rest of the confirmation from proceeding.
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2. Employment and income
In order to be qualified for a guarantor loan, borrowers must have a current job and be earning a particular amount every month, as this is how they will be required to return their debt.
It is critical for the moneylender to double-check this information because the applicant will fill it out on the online form. A borrower’s bank account statement is commonly requested to verify their income and employment.
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3. Purpose and terms of the loan
Moneylenders frequently inquire about the loan’s purpose. Guarantor loans are frequently utilized for lifestyle purposes, such as purchasing new automobiles, paying for weddings, school fees, or taking a vacation.
Other emergency short-term loans are utilized for car repairs, unexpected business needs, and medical payments. Because high-cost interest loans aren’t utilized for frivolous spending like shopping for brand-name consumer goods, it’s important to understand what the loan’s aim is.
4. Guarantor information
With guarantor loans, it’s important to remember that there’s an extra individual involved in the loan: the guarantor. The lender will always attempt to talk with the guarantor. This person (typically a close friend or family member) must know their obligations.
If you miss a single payment, your guarantor, who might be a family member, will not be contacted right away. Before asking the guarantor to pay the bill, the moneylender would always contact the borrower multiple times and suggest alternative payment options.
Small Business Loan Form
You can obtain the small business loan form or application form from the financial institutions offering you loan. You can also download it online from their website.
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Frequently Asked Questions on Small Business Loans in Nigeria
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Conclusion
That’s all there is to get a small business loan in Nigeria. Loans are sometimes required to establish or grow a business, as well as to support day-to-day costs like payroll and inventory. Small-business loans might be difficult to find, apply for, and be approved for, but it’s time to apply for the loans that will match your financial needs and for which they will approve you.
Before you do so, you must first consider your options and choose which one you wish to pursue. Go over the requirements and make sure you have all the essential paperwork. Meanwhile, visit SME360 for more articles to assist you in growing your small business.
