6 factors you should understand before you take a business loan in Nigeria
June 14, 2019
6 factors you should understand before you take a business loan in Nigeria
Business loan in Nigeria – Are you an entrepreneur, business owner, planning to start your own business even, did you want to expand your business but did not have the necessary funding?
If this is you, I wish to say a hearth felt congratulations because the article you’re about to read will change everything for you on the positive.
As you’re aware, finance is the livewire of every organisation which without, it’s difficult for your most brilliant idea to succeed in business.
That being said, it becomes necessary to say that sourcing loan alone will not end your funding struggle without understanding the basis which such loan operates.
As a rule, you may end up having more funding issues despite accessing a loan without understanding your loan parameters, having gotten so acquainted; your business will enjoy your funding without hitches.
To be taken care of in this post also are:
Ø SME loans in Nigeria
Ø Federal government loans for small business in Nigeria
Ø Free loans in Nigeria
Ø Quick online loans in Nigeria
Ø Lydia loan
Truth be told, sometimes these loan firms will not tell you the facts I’m about to reveal to you, but these facts are very necessary as they form the basis of your loan decision. Having gone through those facts, you may rightly decide not to take a loan if they don’t appeal to you or meet your business dynamics.
But assuming your loan syndication had been completed before it was brought to your notice, you’re into contract already, it necessarily becomes too late to pull out of such binding agreement.
Factors You Should Understand Before Taking a Business Loan in Nigeria
1 ) Your loan tenure: This is the duration which a loan is expected to stay with you, then be returned in accordance with documentary agreement you had with the loan issuer or the financial institution before the loan was approved and granted.
In view of this, it’s left for you to understand that for a business/project with a long term plan, your funding need will be defeated if you source a loan that has a short lifespan.
However, the loan amount you need impacts the tenure of the loan directly, the longer the tenure, the higher the interest rate.
2 ) Interest rate: It becomes very necessary that you understand the lenders interest rate which your loan is expected to be based upon.
The method of interest calculation should be well spelt out, for example we have
Ø The Reducing Balance Interest Rate Method and
Ø The Flat Interest rate Method
Understanding the lenders position on this will help you to make informed decision that will not only profit your business, but move it to the next level.
3 ) Creditworthiness and Cash flow: if you are credit worthy enough, it goes a long way to ascertain and influence your loan package.
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Your cash flow will give an insight to the size of your business and how much you can access. Don’t come expecting loan out of proportion especially if you’re running a new business.
Do not be surprise if the lender asks for your statement of account covering duration they deem suitable and necessary, this is to ascertain the size of your business and as well how much you can source.
No lender would like to give out an amount you cannot pay back, don’t expect to add to their bad debt record.
4 ) Understand the Loan Terms and Conditions: Every business loan in Nigeria is guided by modus, this is the binding law upon which loan is being granted. In their terms and conditions, you will get to understand how much collateral you need for a given facility.
Business loan is very difficult to source, that you must understand. Unless you’re a returning borrower, for a new borrower, it’s almost impossible, however after the first ground and your credit worthiness feels good, you will land more loans afterwards.
Understand that if you couldn’t pay back the loan when due, the penalty is clearly stipulated on the terms of your loan.
It pays to have lenders who will give a grace even if you falter, than others who have stiffer measures.
The lenders terms and agreement comes with consequences of your business loan in Nigeria, ensure you understand these terms and their implications before accepting any loan.
5 ) How flexible is the Loan Repayment Plan: This is the dynamics and how you are expected to pay back your loan.
It pays to choose a repayment plan that suits your business.
In this arrangement, repayment plan could be monthly, quarterly, six months or annually, study the plan or seek a credit firm that has a good repayment plan that will suit your business.
Chances are, you may end up syndicating a loan that it repayment plan will frustrate your business.
6 ) Insurance Policy and Recovery Method: Ordinarily insurance is the practice whereby the insurer goes into a contract with an insurance firm, on the basis that the firm will indemnify the insurer in event of an unforeseen lost.
The insurer however pays a monthly premium to the insurance company to consolidate the contract, order wise it seizes to exist.
Why are we talking about life insurance in a facility settings, this is to protect the financial institution in event where there’s casualty or death occur that warrant you are no more alive to pay, the insurance firm will settle the financial institution in full.
Aside this, you need to understand that credit financial institutions behave in different ways, having accessed facility with them, you have the intention to pay back their money, but something could come up like fire disaster, government economic policy may hit your business so bad that you’ll nosedive and things suddenly go South.
Your loan financier behaves in different ways, it’s note worthy to understand their recovery strategies in time like this, you may not want to deal with an institution that will abuse your right as well go to any length to recover their money without leaving an iota of respect for you.
Kindly give this a serious thought and decide if you will do business with a financial institution.
FAQ on Small Business Loans in Nigeria
Ø SME loans in Nigeria: This is a loan made available by credit financial institutions to Small and Medium Enterprises, who are largely perceived as economic drivers. The prosperity of any nation is hugely dependent on the activities of SMEs as they stimulate the economy in the positive direction. There’re a lot of firms that grant small business loans in Nigeria, a lot of businesses are taking advantage of these provisions.
Ø Federal government loans for small businesses in Nigeria: Usually federal government helps businesses with loans in form of grants, other organisations as well consolidates. We have the YOUWIN connect Nigeria, AYEEN financial grants, the Bank of Industry loans etc
Ø Free Loans in Nigeria: Still waiting to have the arrival of free loan in Nigeria.
Ø Quick online loans in Nigeria, there are loan institutions that will enable you process loans online within 24 hours, kindly visit this LINK to see them.
Ø Lidya loan is one of the quick online loans in Nigeria, You may like to check it out HERE.
Accessing a small business loan in Nigeria does not come without its own hassles, it’s however pertinent that you understand the above six underlying factors, which supposedly should guide you right in making informed business decisions.
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Raphael Orji is a freelance writer, professional blogger and a content marketing consultant. I work with small businesses, startups and entrepreneurs in building their brand image with high quality blogging and content marketing strategy.
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