Seeking a business loan is a real challenge for most small businesses in Nigeria, primarily resulting from inadequate credit facilities for small business owners and entrepreneurs in the region. But to start or expand a company or cover day-to-day expenditures, including payroll and inventory, it is often essential to obtain additional financing.
While it can be challenging to find, apply for, and get approved for small business loans, the more information you have about getting a business loan, the better it is for you. This article will provide you with the measures you should take to secure a business loan. But first, we will look at a few institutions where you can apply and secure a business loan with or without collateral:
Banks and financial organizations
People who wish to establish their own companies but do not have the funds needed to start operations will approach banks to meet their financial needs. Banks and financial institutions offer financial assistance for companies at all levels.
Banks will lend even at the outset if they are pleased with the business strategy, the company’s predicted returns, the ability to repay the loan, the management experience & expertise, and other security provided.
Since most bank loans come with a high-interest rate, it essential for you to do your research by comparing different business loan options available to small businesses by major banks in Nigeria. Please ensure you completely understand the terms of the loan agreement before making your mind on which choice to go for, with a guarantee that you will pay back within the window span.
Government loan schemes
Government-sponsored loans are often a preferred option for smaller and growing companies as they are more affordable. Government business loans will help MSMEs finance their regular operating expenses, investments for growth and development, and increase their infrastructure.
A few banks and financial institutions in Nigeria are collaborating with the government under government-aided funding programs like YouWin, BOI, Npower, and so on to provide business loans. These government-sponsored funds most frequently come in the form of a loan or grant with little or no interest rate. This makes it really hard to get one because you have to compete with other business owners.
Loan service providers
We have all been in a position where we required some cash to straighten out something urgently. It takes time for a bank loan to come in, so what do you do? This is where online loan service providers step in.
FINTECH has unlocked the door to quick and easy short-term loans for individuals and small businesses in Nigeria. KiaKia & Quick loans are taking the lead in offering short-term credit facilities with major private organizations such as Paylater (a subsidiary of OneFi). Now you can submit applications for fast loans and get paid within 24 hours.
This form of loan is only offered for a brief period (mostly 3-6 months) and is very restrictive in how much financing can be received. Still, in cases where you need fast cash to fulfill a customer order or stock your inventory, it may be your safest choice.
Steps you should take to apply for a business loan
Below are a few steps to apply for a business loan, and they include the following:
Verify your company’ credit eligibility
You can verify your creditworthiness before you contact the lending company or financial institution. This goes a long way towards influencing your ability to apply for a loan. You can get your Credit Information Report (CIR) from the CRC Credit Bureau.
The CIR is a credit transaction history statement that includes information on loans that you have accessed, loans you are currently repaying, and your financial conduct. Before granting you a loan, loan companies in Nigeria will often perform this search. Why not save yourself some time and search by yourself before proceeding with your loan application.
Put together all appropriate business documents
You may be expected to present some business records and disclosures, depending on the loan firms and financial institutions. Once you make up your mind that you’d like to apply for a business loan, you can start assembling these papers to get prepared ahead of time. Note that banks and lending companies may need slightly different documents from you. Here’s a list of documents that you might make ready:
- Business and personal tax statement for 1 – 2 years.
- Bank account statement for the previous year
- Business strategy (particularly if you are seeking funding for your business idea)
- A report showing the declaration of profits in the last two years
- CAC business registration documents, shareholders agreement document
- List of employee members on the payroll for the past year
- Evidence of ownership or title documents for any asset owned. Most financial institutions and lending firms will require collateral. Nevertheless, some others, including Direct Bridge Nigeria Ltd, provide business owners with unprotected, instant business loans.
Reach out to different lending firms and financial institutions
The next step will be to contact different lending companies in Lagos or any part of the country in which you reside. It is crucial for you to get a clue of what their lending rates, loan terms, and repayment options are.
At this point, making sure you know and understand what you are getting into is very critical. Do your study, consult with business loan service professionals and experts to get help and recommendations. Pick the best form of loan for your business.
Fill out the loan application form
Obtain the loan application form and fill it. Also, prior to signing it, take a peek at the loan agreement. Be careful not to get roped into anything for which you’re not ready. Consult with your loan officer about late payment penalties, hidden fees and the monthly loan repayment breakdown.
It is important that you seek legal counsel if you are not happy with some aspects of the agreement type. Details such as name, home, business address, previously owned companies, phone number, email address, business history, and many more are also required in the loan application form. The lender would then perform a credit check with the credit bureau after submitting the form.
Add additional documents
It would be best to write a business or personal statement and add it to the loan application form to make your application appear extra-reliable. Your personal, along with your business background statements, your financial reports, as well as appropriate paperwork of your business strategy and plan, will be some of the additional documents. This should help give the lender more confidence in your ability to expand your company with the loan and pay it back.
Note, the best time to apply for a loan is before you really need it. This is because the process could take some time, and you wouldn’t want to be in a situation that causes you to accept any offer given to you urgently without reviewing the details.
You should read this and learn – Pros and Cons of Getting a Business Loan in Nigeria
How To Get Business Loan in Nigeria: The Ultimate Guide–invoice
A 5-Step Guide to Applying for a Small Business Loan in Nigeria–Omnibiz