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The Ultimate Guide to Getting a Business Loan In Nigeria

business loan in nigeria

As a business owner especially a small start-up, there comes a time when you’d need to source for external funds (like a business loan). These funds are meant to help grow your business by covering payroll and other daily expenditures or even drive expansion. 

One of the best ways to source for these funds is by applying for a small business loan. When investors are not forthcoming, or you are not ready to release a chunk of your business to investors, loans become the most viable option

Due to the increase in demand for loans, there are many steps to take before getting the funds you need. This is why we’ve come up with a guide to help you get that loan you need to grow your business.

Table Of Content:

  1. Where Can I Get a Business Loan?
  2. What Do I Need To Apply For a Business Loan?
  3. How To Prevent My Business Loan From Being Denied.
  4. Conclusion

Where Can I Get a Business Loan?

small business loan application in nigeria

You’ve probably asked around from friends and colleagues:

‘How do I get a loan for my new small business?’

Well, the first step is knowing where you’d want to get your loan from. This is because it doesn’t just determine the growth of your company, but it determines the state of your mental health afterwards. 

Anyone can offer you a loan but only credit institutions can offer you great value, fair interest rates, and penalties in case of late payments. In essence, these institutions offer the structure you’d need to obtain a loan.

Also, you need to pick out the right loan for your business and this is hugely dependent on the company you take it from. While some offer great terms for corporations, they might not be a great fit for a start-up.

So, if you are interested in funding your start-up company or small business, below are great options for getting small business loans in Nigeria;

1. Commercial Banks 

Financial institutions, like GTBank, have the resources more than any other, to grant loans that can be paid over the agreed period of time. One key advantage is that they offer loans to both small and large businesses alike. This, of course, depends largely on your presentation. They look out for your business plan, strategy, profit expectations, and the capacity to which you can pay back the loan. So you may need to work on that to give you an edge.

It is also very important that you go through the terms of the loan thoroughly before signing the dotted lines. Although banks record the highest interest rates on loans, it comes with security that makes it worth the rate. And since bank interest rates vary from bank to bank, go through a few of them to find one with a rate that works well with your business.

2. Government Sponsorship

If you are a start-up or a small business, you should consider taking sponsorships (that comes as loans)from the government. There are many of these initiatives currently out to support small businesses. Some are done yearly or even bi-annually. 

An example of this is N-POWER, an initiative that gives both training and funding to prospective business owners in various fields. The great thing about these sponsorships is that most times they have minimal interest rates. However, because of this, they are more challenging and competitive to get.

Other examples are YouWin, Bank of Industry.

3. Online Loan Companies

online platforms for business loan

There are many companies dedicated to granting loans with expected return interests. In the past, they were walk-in offices you could visit and apply to. However, with the increasing popularity of businesses listed online, lending companies are now providing accessible short-term loans for businesses. 

A great example is Glade.ng which can grant you a business loan online. Applying online saves you the time and effort of traveling down to the office or branch location. With any loan provider’s mobile app, the exchange of information and background checks has become faster. This makes loans easier to get.

Another upside for a company like Glade.ng, is that you get access to other very important tools to help your businesses grow. Check out the many advantages Glade can bring to your business, including payments, here.

Ensure you source for loans only from a verified company online to avoid fraud or loan sharks.

4. Microfinance Banks

These are like commercial banks, but with a focus on small businesses and individuals. Because microfinance banks are majorly targeting people who lack access to conventional banking services and related activities, their interest rates are quite lower than commercial banks.

Also, loan processes for microfinance banks do not take a long while like other commercial banks. They are also much more lenient, if you default with valid reasons.

An example of this is Lapo Microfinance bank.

What do I Need to Apply for a Business Loan?

Before walking into an institution, you have to be prepared. Think of this as a business pitch or an interview. You have to convince the lenders in question that you are a worthy recipient of the loan before they can grant it to you. And the only way to do this is by getting everything you need to apply beforehand.

So, here are a few things you should have ready for before your loan application.

1. Your Transaction History

You might be asked to provide a number of receipts and proof of credit history. All of these are to establish how financially buoyant your company is and how frugal you are with money. It also shows how capable you are of repaying that loan when the time comes.

A great way to get all this information is from the CRC credit bureau. All you have to do is a request for a Credit Information Report. This report carries all your loan history, how well you’ve been paying them off and all financial spending.

It’s important you make your own research about it because the institution you’re meeting with will run this background check on you. Find out your eligibility status before scheduling a meeting.

2. Business and Company Documents

There has to be proof that you actually own a business, yes? This is where your business documents come in; proof of existence and ownership. The required documents you’d need varies and this depends entirely on what institution you’re meeting with. So before setting out, ensure you gather all of the documents listed below:

  • Title documents
  • Tax statement for the past two years
  • A bank statement for the previous year
  • Your business income statement
  • CAC business registration document
  • A business plan if you’re looking for a start-up investment loan
  • A list of staff and their payroll

PS: Online business loan platforms do not require all of these documents.

3. Research and meet with consultants

Making ample research about the type of loan you seek, along with the institution you want to apply to, will help you prepare for your pitch. Find institutions that grant loans in your location. Once that is done, schedule a meeting with them to find out the terms and conditions of their loans. If possible, consult experts in the field to help you pick out the best option for your company. 

Lenders want to see a properly-outlined plan and what way to do that than to explain that you have met with experts and consultants who have suggested that this is the best plan for your business growth.

Finally, ask questions. Ask about the penalties, repayment options and about any unclear charges. The interest rates are crucial as you don’t want to spend decades repaying a loan or regretting why you ever took one. It is imperative that you understand the agreement form before appending your signature on it.

How To Prevent My Business Loan From Being Denied.

business loan denied

You may have probably heard from other business owners on how loan rejection is a pretty common occurrence. However, you should know that as much as loans are being rejected, businesses are getting them by the day. 

You have to look at the perspective of the institutions offering the loan and then make your company fit into what they can work with. 

Here are a few tips to improve your chances of getting a small business loan approval.

1. Apply Early

If you are sourcing for loans in banks and financial institutions, start applying early. This is because the process can take a while and during this period, you have to make your business stay afloat. If you don’t, you might find your business crumbling and the funds you get won’t do you a solid then.

2. Have enough collateral

Your collateral has to be in sync with the amount you need for your business. It is impractical to present a collateral worth N100,000 when you’re sourcing for N2 million loan. The institution will never be able to get the money if you default on payment. Although, there are many loans that do not require collateral, getting a secure one like bank loans will require the need for one.

3. Be a Guarantor

When you act as a guarantor for a friend or a family member during their loan application, they affect your own chances of getting a loan. If they default on the payment, your loan application will most likely be denied because their debt has automatically become yours.

4. Minimize Business Debts

If your business already has a debt or your profit level is critically low, getting that loant might be hard. Lenders want to give out when they know you have the capacity to pay back on time. The only way to do that is when you have a practical returns projection. How to work around this is to ask for a loan that can be easily paid off with your account statement history. Don’t take loans that are beyond your capacity or loans that your credit history cannot clear off.

Conclusion

In summary, loans are pivotal in business management. So even if you aren’t ready to take a loan now, work towards making your business solid if the need arises. Evaluate your credit score and be wary when you stand in as a guarantor for another business. Also, get all your business documents handy.

Over here, we are wishing you the best in your loan application.

Please, feel free to share your experience in the comments section below.

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