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In the past, getting financial help from lending institutions was difficult. But thanks to contemporary technology, much of the process has been made more convenient for loan applicants—at least for borrowers seeking lower sums of money. In this article, we’ll walk you through the steps to securing a small business loan in Nigeria, regardless of how much you’d like to get.
Determine Your Business Needs
The first thing you’ll need to do is to get clear on why you need the loan. Are you looking to start a new business, expand an existing one, purchase equipment, cover operational costs, or hire new employees? Having a well-defined purpose for the loan will help you select the right type of loan and determine the amount you need.Research Loan Options
As we’ve hinted, there’s some variety in the array of lending options available to you in today’s world. The common options include:- Traditional Bank Loans: Many commercial and microfinance banks offer small business loans. Thanks to the sheer number of banks that exist in Nigeria, there’s no shortage of alternatives here.
- Online Lenders and Loan Apps: Online lenders provide a convenient and fast way to secure small business loans. But they often come with higher interest rates. Examples include Carbon, Kuda, Fairmoney, and RenMoney.
- Governmental Organizations: Government-backed development finance and business-supporting institutions such as the Bank of Industry and the Bank of Agriculture provide low-interest loans to worthy businesses that apply to them.
Prepare a Business Plan
Many lenders, especially traditional banks, will want to review your business’s viability and growth prospects before deciding whether or not to lend to it. One way they do this is by examining your business plan. Ideally, this document will include details about your business, its goals, financial projections, and how the loan will be used. Lenders will want to see that you have a clear vision for your business and a strategy for repaying the loan.Get Your Financial Documents Ready
Understandably, lenders (again, especially traditional financial and governmental institutions) want to be sure that they’ll get their money back (with interest) at the end of the loan tenure. So they’ll want to assess your creditworthiness and financial stability for clues into this. Typically, they will request the following documents:- Business and personal tax returns
- Bank statements
- Profit and loss/income statements
- Balance sheets
- Cash flow statements
- Business licenses and permits
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Check Your Credit Score
A credit score is a three-digit number (ranging from 300 to 850) which suggests how risky it would be for a lender to give you a loan. As such, your personal and business credit scores play a significant role in a lender’s decision to approve your loan application. If you’d like to know whether you stand a chance of getting a loan, you can check your credit score by dialling the code *565*8#. This will provide you with a credit report from the CRC Credit Bureau. A higher score translates to a better chance of securing a loan.Build a Strong Relationship with Your Lender
As is the case with so many other things, maintaining a good relationship with your potential lender will make your small business loan application process smoother. If it’s possible, schedule meetings with them to discuss your business plan, needs, and expectations. This can help the lender better understand your business and make approval more likely.Complete the Loan Application
After gathering all the necessary documents and choosing a lender, your next step will be to complete the loan application. Be thorough and accurate in your responses and ensure that you meet all the eligibility requirements for the chosen loan program.Be Prepared for the Approval Process
If you’re using a loan app, it may take you just a few minutes to get your application approved. On the other hand, approvals from formal lenders can take time, and lenders may request additional information or documentation. Whatever scenario applies, be patient and responsive to any requests from the lender. Note that delays in providing information will prolong the approval process.Review and Accept the Loan Offer
If you succeed in your quest for a loan (i.e. if the lender offers you one), you should carefully review the loan terms, including interest rates, repayment schedules, and any associated fees, before accepting the offer. This should apply to loans given by regular banks and apps. Don’t settle for anything unless you are clear that it’ll be in your business’s best interest.Register to attend the CN Business Mixer
Put the Funds to Good Use
Once you have the funds, utilize them as you have detailed in your business plan. Keep accurate records of your expenditures and use the funds wisely to achieve your business goals.Final Words
Getting a small business loan is a significant step in the growth and development of your business. Follow the steps we’ve discussed here, and you’ll raise your chances of securing the financing you need to take your business to the next level. Featured Image Source: MarcaGot a suggestion? Contact us: editor@connectnigeria.com