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What do I need to get a business loan?


For business owner who plan on accessing loans either from the government or commercial banks, here are some of the essential requirement:


1. Registered Business Name:
this implies that your business name must be registered by the Corporate Affairs Commission (CAC).

This shows that your company is legally recognised and also has clearly defined scope of business.

This is a major requirement for any kind of business loan including Agriculture loans


2. Corporate Accounts: having a bank account for your company that is different from your personal account can so it makes it easier for the bank giving the loan. As it becomes easier for them to track the cash flow the business.

Although, there can be some exemption to this depending on the terms of the financial institution. But if you're planning on getting  a sizeable amount of business loan  either from the government or commercial banks in the nearest future it is advisable to open a corporate account for your business.


3)Business plan

A business plan is a document that shows among other things the business goals, it's financial projections and strategies showing how these goals will be implemented.

It indicates that the whole process has been carefully thought out and planned. This is perceived as a way of increasing the chances of business success.


4) Business  Records : 
This involves the act of book keeping. These are records that show a list of your business expenses (such as cost of raw materials, transportation, rent, staff salaries etc) and income over time.

Asides from the fact that it provides data for the accountant to work with when the time comes.It also helps the bank in determining the financial capacity and status of your business. 

But oftentimes most small and medium enterprises (SMEs)  do not keep records simply because there is no third party to give account to.

Therefore, it becomes a difficult task when the bank begin to ask for financial books;.


5. Collateral:
this is often required as form of guarantee by the bank just in case there is a default in the loan repayment. This can be in the form of properties or other assets as specified by the bank.

However, it is not every time that banks request for collateral before issuing out a loan. Sometimes an active business account with some banks can be a form of qualification.

Also, some government loans do not require collateral.

6)Guarantors:  Guarantors are people that will stand as sureties for you. Provision of quarantors depends on the conditions provided by the financial institutions involved.

When is it advisable to get a loan?

If the demands for your goods have exceeded the supply, then you may need cash to expand your business to meet the growing demand.

The only time to consider taking a loan is when you have exhausted every organic or internal source of raising funds or credit purchases from your suppliers.


What type of loan should I get?

There are many factors that should be considered before taking any loan

1) Interest rate :
this is the amount you will pay as a charge for using the credit facility. Always ask questions for clarity. If a loan is said to have a 2 percent interest rate, ask if it is for a monthly or annual basis. This is because that will cumulate to 24 (2x 12) percent if it is on a yearly basis.

That means for every hundred thousand (N100 000) Naira borrowed, a hundred and twenty four thousand (N124 000) Naira will be paid back over the course of one year.

That amounts to roughly a ten thousand four hundred(N10,400) Naira repayment monthly that is if there are no other hidden charges.

2) Other charges: there will be need to ascertain if there are other charges attached to the lending asides from the interest rate.
This will help inform your decision.

3) Financial status of your business: you need to be sure if your business has the financial capacity to pay back the loan within the specified period. As you do not want a loan that can damage the financial health of your organization. Rather one that can help grow your business.

Here are a list of websites to watch out for if you are in need of low interest loans as a business owner

www.nmfb.com.ng
www.cbn.gov.ng
www.smedan.gov.ng
www.ycombinator.com
www.mastercardfoundation.com 


Jumoke Ayeni 

Comments

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