Your business would need to grow, expand and exploit new opportunities
from time to time and bank loans are designed to help you achieve this. Loans can
also be a lifeline for some struggling businesses, because it will enable them
overcome a critical phase in their business operations.
So while many Nigerian businesses need funding, a good number
of them struggle to persuade banks for the much needed loans. The reasons range
from risks involved in their businesses to inadequate collateral. In this
article we want to see if you have what it takes to overcome these challenges
so that you can secure your next bank loan.
Hold on, I know that Nigerian bank loans are very prohibitive
in terms of interest rates as they are among some of the most expensive in the
world. The good side is that Nigerian market is a large consumer based economy. That means many businesses engaged in certain
services and trades can still afford the bank loans to fund their growth and
expansion plans.
Before looking at the tips that will boost ones chances of
securing a bank loan in Nigeria it is very important to cover some very
essential but underlying issues that may affect the outcome of a bank loan
application in Nigeria. For instance we would want to answer these questions;
When Should
I approach a Bank for a Loan?
Whether it is a commercial or micro finance bank you are
approaching for a loan, the best time to approach a bank for a loan is when the
plateau of self-growth has been reached, the point at which funding your own
growth from your profits is not feasible to make you competitive or profitable.
Every profitable business will attract competitors who in turn will slow down
your growth rate due to decreased market share for your business. So a good
time to approach a bank for a loan is if it will enable you acquire machinery
and equipment that will increase your production capacity and ability to serve
your customers better. In other words, yes to bank loan if doing so will
increase your market share and business bottom line.
What Types
of Loans are there and which are suitable for my business needs?
I will answer this from the tenor of the loan. Less than 3
years which are short term loans are offered by commercial banks, 12 months or
less is mostly by Microfinance Banks (MFBs) and usually charge interests of
over 18% to as high as 30%. Other banks with specialized mandates like the Bank
of Industry (BOI) offer 5 to 10 year loans and usually below 10% interest rate.
If you are medium to large scale operation, bank loan for purchasing production
machinery for expansion is better with BOI than commercial banks. If you are
trying to finance a trading transaction, facilitate a short term contract,
import goods etc if your turnaround is less than 3 years then commercial banks are
best.
What Sectors
do Nigerian Banks prefer to give more Loans to?
Nigerian banks typically like to lend to sectors, industries
and businesses with high profit margins, good cash flow, low risk levels, proven
business models and sizeable markets. Businesses that have huge year on year
increase in sales, have year round high demand for their products, have sizeable
asset base compared to loan amount and track records for good credit repayment.
Sectors like manufacturing, industries like real estate, Fast Moving Consumer
Goods producers, road transport services, trading (retail and imports
especially), hospitality services (hotels, restaurants and bars) to name a few.
If your business, industry or sector was not mentioned, it doesn’t mean the
banks will ignore your loan application if your business opportunity is
feasible.
What are
some of the problems with Nigerian Bank Loans?
As mentioned earlier they are usually very expensive
attracting over 20% interest rate. Besides this, bank tenors for loans are very
short as little as 3 months to 3 years for commercial and micro finance banks. This
is not suitable for businesses looking for long term expansion projects. Added
to this is the tendency for banks to ignore the Agriculture and creative
industries for their highly volatile market trends. Although some years bank,
the CBN did introduce some industry specific intervention funding for Agriculture
and Creative industries which can be accessed through specialized banks like
the Bank of Industry and Bank of Agriculture.
Are the High
Interest Rates from Different Nigerian Banks worth The trouble?
In the face of no better alternatives then yes it is worth,
after all accessing cheaper loans from other sources is not easy. The
timeliness and urgency of such loans means that you are better off Nigerian MFB
and commercial bank loans for your urgent business needs than waiting months or
even years for other cheaper funding options.
How do Nigerian
Banks Assess Loan Applications?
Most Nigerian banks use several criteria but some of them are
listed below;
·
- The Sector and Industry of your Business
- Business Opportunity (how profitable)
- Risks involved (how much uncertainty is involved in
the business and how decisive is it?)
- The Quality of your Business Plan
- Your Track Record (for repaying loans and good
relationship with the bank)
5 Tips that
will boost your chances of getting a Nigerian Bank Loan
Just straight to the point these tips are;
·
- Be prepared with supporting documents. All documents (tax returns, financial statements, business plan etc) that will make your application easier to present with facts and figures.
- Demonstrate Industry Leadership. Are you a top player in your industry, one of the leading businesses in your industry
- Build a meaningful relationship with your bank. Maintaining good credit scores, relating well with your account officer, networking adequately with key bank managers
- Build a
network of partners and proven customer base. Forming an
effective network made up of people you work with to achieve your business
goals and your list of customers/clients can strengthen your market position
which the bankers are aware of
- Present a
bankable business plan. This will show the banks what you can do with their
loan and how you intend repaying the loan.
Looking to
approach a Nigerian Bank for a loan and need a bankable business plan to
present to the banks? Give me a call: 0803 206 4106 or email me: paulonwueme@gmail.com to get one
professionally written for you
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