A business loan is important to the survival and growth of Micro, Small, and Medium Enterprises. All over the world, MSMEs are the engine room of wealth creation. This article will teach you how to get a business loan and grow your business.
This is not different here in Nigeria, as over 70% of the total labour force is employed by MSMEs. Setting up and running a business is no small task; business owners need all the support, including business loans. This will stabilise and grow their enterprises and ensure they continue to create wealth and prosperity for society.
We will look at the different options open to you as a business owner to secure business loans for the smooth operation of your business here in Nigeria. Let’s go!
What Is A Business Loan?
Businesses need an adequate amount of capital to fund their operations and possible expansion. But to do this sustainably, they need a business loan. A business loan is a credit facility (capital) advanced by a bank or private lender to a business owner and governed by the terms and conditions of the parties involved.
Sources of Business Loans.
There are different business funding options available to businesses. We will look at the different ways business owners can get funding for their business.
Family and Friends
You remember that saying that says “charity begins at home”, right? That is true because your family and friends may be favourably disposed to give you an interest-free business loan to support your business operations, especially when you are starting up.
However, you must note that your relationship could be strained if you cannot pay back the loan as due. In that case, you risk the relationship.
Bank Loans.
Bank loans are the most available and preferable finance option for many business owners. This is so because most banks these days offer flexible non-collateral MSME loans to businesses. Discuss with your Bank to understand the type of loan facilities available for businesses.
In addition, it is important to note that most banks want to see evidence that they can get back their funds, so they want to see traction.
Government-Backed Programs.
These are funding initiatives for MSMEs by the government at various levels designed to spur private-sector-driven wealth creation activities to create job opportunities. Some of these initiatives are domiciled with various government-backed organisations or agencies, including:
- Small and Medium Enterprises Development Agency of Nigeria (SMEDAN)
- Lagos State Employment Trust Fund (LSETF)
- Bank of Agriculture (BOA)
- Bank of Industry (BOI)
- Central Bank of Nigeria (CBN)
- Development Bank of Nigeria (DBN)
- Nigerian Export-Import Bank (NEXIM)
Private Money Lenders.
Private money lenders are your regular everyday individuals (loan sharks) who specialise in giving out loans to businesses and individuals. The downside to this source of raising capital for your business is the high-interest rate often charged by these loan sharks.
Online Business Loan Platforms.
In recent times, the rise in Fintech activities in the economy has led to several online lending platforms. These new players are leveraging technology to offer quick loans to their clients, often with no collateral and other bureaucratic processes eliminated.
You can also read about ten sources of Bootstrap financing to grow your business here.
Steps To Take Before Getting A Business Loan.
1. Decide What Type of Business Loan You Need.
As a business owner, you need to decide what type of loan you need for your business –startup financing, business line of credit, equipment, or contract financing.
2. Determine What Payments You Can Afford.
How much can your business afford for loan repayments monthly? It would be best if you answered this important question after looking at your business’s financials, especially your cash flow history.
3. Decide How You Want to Collateralize The Loan.
It would help if you also considered what collateral is available for the business loan you intend to secure and whether it is a risk you can afford to take. For example, business collateral could be property or equipment that a lender can seize if you fail to repay the loan.
4. Gather Your documentation.
In the case of formal business loans, especially from banks, you will need some documentation to get your approval.
Documents You Need To Get A Bank Loan
- Business bank account statements
- Tax returns and supporting Tax documents for both your business and personal tax accounts
- Applicable licenses and registrations for doing business in your city or state.
- Business venture/ incorporation documents.
- Cash flow analysis forecast.
- Business plan with details on your growth and marketing strategies, etc.
5. Choose a Lender.
Knowing what requirements you will need to bring to the table—and what loan product best suits your business needs, you now need to pick a preferred lender and proceed with your loan application.
Choose a lender that offers the type of financing you want.
6. Fill Out The Business Loan Application.
The last step involves filling out the loan application document, submitting it, and waiting for the approving authority to process and approve it.
Organisations That Give Business Loan
1. Federal Government of Nigeria Special Intervention Fund For MSMEs (National Enterprise Development Programme) Managed by BOI.
The Fund is a Federal Government of Nigeria initiative to provide subsidised loans to SMEs at a single digit (9% per annum) all-inclusive interest rate. The Fund is also to cater to applications received from SMEDAN under the National Enterprise Development Programme (NEDEP) Scheme.
Requirements For Getting BOI Loan
Economic Rationale:
The Fund is aimed at stimulating economic activity in the SME sub-sector, being the primary driver of industrialisation, wealth and job creation.
Target Group/Market.
The Fund can be assessed by duly registered Limited Liability Companies, Enterprises, and Cooperatives in Nigeria. Applications are received and processed at BOI State Offices.
Projected Impact.
The Fund is to be utilised for SMEs engaged in manufacturing and agro-processing businesses, emphasising value addition to local raw materials.
Program Limit.
N5.0 billion
Single Obligator Limit.
N20.0 million
Fees.
- Interest rate: 9% per annum (all-inclusive).
- Legal Fee (where applicable)
Tenor.
To be determined by the company’s cash flow in line with BOI standard practice.
Moratorium.
6 – 12 months
2. Development Bank of Nigeria (DBN) MSME Loan
Who Can Get a DBN Loan?
According to the Development Bank of Nigeria, all MSMEs startups or existing businesses involved in productive enterprises are eligible to get a loan from the Development Bank of Nigeria. In addition, DBN is poised to provide funding and risk-sharing guarantees through Participating Financial Institutions (PFIs), who will then on-lend to end beneficiaries.
To access these loans, it is required that the business must be a customer of any of the eligible Participating Financial Institutions (PFIs) in Nigeria. The PFIs include major Commercial Banks, Microfinance Banks, Development Finance Institutions (DFIs), and other Financial Institutions.
How To Get A DBN Business Loan.
- Visit your Bank: Commercial Bank, Microfinance Bank, Development Finance Institution (DFI), and other Financial Institutions and indicate you want to apply for a DBN Loan.
2. The Bank appraises the business and loan purpose, and if its assessment is favourable, the Bank applies to DBN for funding.
3. If DBN approves the loan, DBN will disburse it to the Bank for on-lending to end borrowers.
DBN Loans Frequently Asked Questions.
Can Businesses Borrow Directly From DBN?
No, the Development Bank of Nigeria (DBN) does not lend directly to businesses. DBN loan is channelled through PFIs. PFIs carry out the credit evaluation and supervision of the loan.
How Many Years Do I Have To Pay Back The Loan?
Depending on the nature of your business and loan purpose, you may have up to 18 months moratorium on principal repayment for working capital & investment projects and up to 10 years to repay the loan.
What Is the Interest Rate?
DBN loan offers flexible interest rates based on tenure and market rates.
How Does a DBN Loan Differ From Other Commercial Loans?
DBN loan is specifically targeted at small businesses to ensure that such businesses have increased access to financing. In addition, DBN loans have a longer tenure than other commercial loans, which are usually short-term.
See also: How to Get Loan from Development Bank of Nigeria to Grow your Business.
3. BOI/Dangote Foundation Fund.
The Dangote Foundation/BOI Fund is a 5 billion naira matching fund, which can be accessed by Enterprises and Limited Liability Companies engaged in the Manufacturing, Agro-Processing, and Merchandising sectors for made in Nigeria goods, with a single obligor limit of 50 million naira with an interest rate of 5%.
4. Commercial Banks.
Many Nigerian commercial banks have different finance facilities for businesses with varied interest rates, tenors, and documentation requirements. Some of these commercial banks include:
- First Bank SME products financing.
- Standard Chartered Bank smart business loan
- Guaranty Trust Bank SME loans and advances.
- Access Bank business loan
- FCMB business loan.
- Fidelity Bank SME loans and advances
- Zenith Bank MSME loans
- Union Bank SME loans
- UBA SME loans and advances
- Stanbic IBTC Bank business loans
- Ecobank lending solutions.
- Polaris Bank SME loans
- Providusbank financing solutions
- Wema Bank SME loans
4. LSETF MSME Loan Programme.
The Lagos State Employment Trust Fund loan programme aims to create affordable access to funding for small businesses to grow, expand, create wealth and put people to work. According to the LSETF website, the loan scheme, which attracts only a 9% interest rate per annum, is available to business owners who are registered residents of Lagos State.
Categories of Beneficiaries Of LSETF MSME Loan.
a) LSETF Micro-Enterprise Loan (N50,000 – N500,000) per person
Features:
- Available to all business owners operating and resident in Lagos state
- Maximum loan amount is N500,000
- Loan tenor = 12 months (no moratorium)
- Equity = 5% of loan size
- Interest rate = 9% per annum
Requirements:
- LASSRA Id
- Tax id (LIRS)
- Valid government-issued identity card
- Bank verification number
- 2 passport photographs
- 6 months bank statement
- Business must be in existence for at least one year
b) LSETF Micro Enterprise Start Up Loan (N50,000 – N250,000) per person
Features:
- Available to all micro-enterprise startups in Lagos state
- Maximum loan amount is N250,000
- Tenor = 12-15 months (including 3 months moratorium)
- Equity = 5% of loan size
- Interest rate = 9% per annum
Requirements:
- LASSRA Id
- Tax id (LIRS)
- Valid government-issued identity card
- Bank verification number
- 2 passport photographs
- Vocational certificate from a Lagos state recognised certifying body
c) LSETF Small and Medium Size Enterprise Loan (N500,000 – N5,000,000) per business
Features:
- Available to all small and medium-sized business owners operating and residing in Lagos state
- Maximum loan size is N5m
- Tenor = 24 – 36 months
- Equity = 5% of loan size
- Interest rate = 9% per annum
Requirements:
- LASSRA Id
- Tax id (LIRS)
- Valid government-issued identity card
- TIN number (FIRS tax identification number)
- Valid CAC documents
- Bank verification number
- 2 passports
- 12 months corporate bank statement
- Business must be registered with CAC and operational for at least a year
d) LSETF/First-Edu Loan (500,000-5,000,000) per school.
Features:
- Available to schools operating in Lagos state
- Maximum loan size is N5m
- Tenor = 12 – 24 months
- Equity = 5% of loan size
- Interest rate = 9% per annum
Requirements:
- LASSRA Id
- Tax id (LIRS)
- Valid government-issued identity card
- Tin number (FIRS tax identification number)
- Valid CAC documents
- A minimum of 100 students enrolled
- Bank verification number
- 2 passport photographs
- 12 months corporate bank statement
- School or training institute must be registered with the CAC and operational for at least 1 year.
e) LSETF/EDFIN EDU LOAN (500,000-5,000,000) per school
Features:
- Available to schools operating in Lagos state
- Maximum loan size is N5m
- Tenor = 12 – 30 months
- Equity = 5% of loan size and 10% of asset finance.
- Interest rate = 9% per annum
Requirements:
- LASSRA Id
- Tax id (LIRS)
- Valid government-issued identity card
- Tin number (FIRS tax identification number)
- Valid CAC documents
- A minimum of 50 students enrolled
- Bank verification number
- 2 passport photographs
f) LEAP Tourism Loans.
Features:
- Available to all businesses in the tourism and hospitality sector operating in Lagos state and registered under the ministry of tourism
- Maximum loan size =n=5m
- Tenor = 12 – 24 months
- Equity = 5% of loan size
- Interest rate = 5% per annum
Requirements:
- LASRRA Id
- Tax id (LIRS)
- Valid government-issued identity card
- Tin number (FIRS tax identification number)
- Valid CCC documents
- Business must be registered under the ministry of tourism
- Bank verification number
- 2 passport photographs
- 12 months corporate bank statement
g) LSETF/Access Bank Micro Enterprise Start-up loan (50,000 – 250,000)
Features:
- Available to female micro-enterprisestartupss in Lagos state
- Maximum loan amount = N250,000
- Tenor = 12 months (including 3 months moratorium)
- Equity = 5% of loan size
- Interest rate = 10% per annum
Requirements:
- LASSRA Id
- Tax id (LIRS)
- Valid government-issued identity card
- Bank verification number
- 2 passport photographs
- Vocational certificate from a Lagos state recognised certifying body.
h) LSETF/Access Bank Micro-Enterprise Loan (50,000-500,000)
Features:
- Available to all female business owners operating and resident in Lagos state
- Maximum loan amount = (=N=500,000)
- Loan tenor = 12 months (no moratorium)
- Equity = 5% of loan size
- Interest rate = 10% per annum
Requirements:
- LASSRA Id
- Tax id (LIRS)
- Valid government-issued identity card
- Bank verification number
- 2 passport photographs
- 6 months bank statement
- Business must be in existence for at least one year
I) LSETF/Access Bank Small And Medium Enterprise Loan (500,000-5,000,000)
Features:
- Available to all female business owners operating and resident in Lagos state
- Maximum loan size =n=5m
- Tenor = up to 24 months
- Equity = 5% of loan size
- Interest rate = 10% per annum
Requirements:
- LASSRA Id
- Tax id (LIRS)
- Valid government-issued identity card
- Tin number (FIRS tax identification number)
- Valid CAC documents
- Bank verification number
- 2 passport photographs
- 12 months corporate bank statement
- Business must be registered with CAC and operational for at least a year
On a final note, taking a business loan to start or grow a business may appear risky for some entrepreneurs. But remember that the entrepreneurial journey demands boldness and courage.
You have to carefully examine the needs of your business and take the necessary steps towards nurturing and growing it to an enviable height – and a business loan may be one of those required steps to take now. Good luck in your quest for success in your business.
To learn more on how to grow your business, attend The Business Clinic or Ask an Expert.
