Starting a business in Nigeria requires time, investment, capital, resources and many others. One of the ways entrepreneurs get funding for their businesses is by borrowing money. Acquiring business loans in Nigeria can be difficult because of the poor credit infrastructure in the country. We have provided you with ten ways where you can get business loans in Nigeria.
Getting a loan is a great way to fund your business along with covering your day-to-day expenses, inventory and payroll. You can obtain short and long-term interest loans to fund your business.
Some of these loans come with low-interest rates and some others come with high-interest rates. It is very important for you to go through the terms and conditions of any loan monger, loaner or loan service provider before getting the loan.
Also, if the terms and conditions are not favourable, you can decline the offer for a better one that suits you. There are several ways to get loans for your business in Nigeria. Before that, you need to have a good idea of what a business loan is?
- 1 What Is A Business Loan?
- 2 Business Loans in Nigeria
- 3 10 Ways To Get Business Loans In Nigeria
- 3.1 1. Loans From Families
- 3.2 2. Loans From Friends
- 3.3 3. Getting A Loan From A Fund
- 3.4 4. Loans From Money Lenders
- 3.5 5. Get Business Loans From Microfinance Banks
- 3.6 6. Get Business Loans From Commercial Banks
- 3.7 7. Government Loan Schemes
- 3.8 8. Obtain Business Loans From Business Corporations
- 3.9 9. Online Loan Service Platforms
- 3.10 10. Loans from Private Investors
- 3.11 Tips For Getting Quick Loan For Your Business
- 3.12 Conclusion
What Is A Business Loan?
A business loan is a sum of money which is given to an individual(s) or group of entrepreneurs to raise capital or funding for their business. Normally, business loans are disbursed on that condition that the loans must be repaid at a later date.
At times, business loans are paid with interest, sometimes, they are not. The interest rate depends on the loaner; the loaner is the one who provides the loan.
Business Loans in Nigeria
Business loans are different from other loan types. Typically, non-business loans involve the process of receiving money from financial institutions and other sources with the intent of repaying at a future date with interest. But in business loans, this is not usually the case.
Typically, when applying for business loans in Nigeria, you will need the provide your previous credit history for assessment. Also, you will need to have a business plan that outlines your business idea.
You may be considered if your business plan contains profitable business ideas. On the other hand, your application may be denied if you present a poor business idea.
10 Ways To Get Business Loans In Nigeria
The availability of various financial institutions and loan service providers increases your chances of getting loans for your business. Here are the best ten ways to get business loans in Nigeria.
1. Loans From Families
Typically, the first place people go in search of loans is to meet their relatives and other members of their families.
Your relatives are familiar with you – they know who you are and may know everything about you. If you are trustworthy, they will see more reasons to trust you with their money.
If you are a wasteful person, your rich uncle or aunt may not be willing to give you a business loan since they will be assured that they wouldn’t get it back.
Your family member should be willing to give you money to start your business if he or she isn’t making use of the money at that particular point in time.
2. Loans From Friends
Apart from borrowing loans from the members of your family, you can try out your friends. Just like the proverbial saying: “A friend in need is a friend indeed”, you can approach your close associates to get business loans in Nigeria.
I have seen many Nigerian entrepreneurs of Igbo descent who borrowed money from their friends to travel to China, Malaysia, South Africa and other African countries to start a business for themselves.
Today, most of these guys are millionaires and others are doing well in their line of business. You don’t need to have a rich or wealthy friend. What you need is ‘REAL’ friends, not FAKE ones.
If you have a group or committee of friends, each member can contribute a share and the entire group crowdfund for you to start your business. Truly, there is strength in unity.
3. Getting A Loan From A Fund
Alternatively, you can get a business loan from a fund. Typically, some of them offer low-interest rates for entrepreneurs and small business owners. Also, they offer training and guidance tips on how you can grow your business.
If you are starting a new business, you need to be trained on how to run a business, grow your business, organize and make plans for your personal life and business.
These funds do not only provide you with entrepreneurship tips but can also give you money to start your own business. Popular examples of them include;
- Tony Elumelu Fund.
- Tony Elumelu Foundation (TEF).
- Lagos State Employment Trust Fund.
- Social Intervention fund of Federal Government.
- GroFin Fund.
4. Loans From Money Lenders
There are people whose job is to provide people with loans. Typically, they can be in form or organizations or private individuals.
By providing loans to people, money lenders have been able to make a business for themselves. If you are an entrepreneur or business owner, you can get loans from people offering money lending services.
Equally important, there are many fraudulent money lenders in Nigeria. This is why you should be careful when dealing with money lenders.
We recommend that you shouldn’t rush when getting loans from money lenders. Go for the amount you need; you may be charged a high-interest rate if you are given excess funds.
5. Get Business Loans From Microfinance Banks
Microfinance banks are financial institutions that are established to provide financial and banking services to low-income or unemployed persons. There are many microfinance banks in Nigeria; anyone can meet up with these banks to get a business loan.
If you are looking to start a small business in Nigeria, the best place you can get funding is at a microfinance bank. The microfinance banks take more risks and can provide up to ₦100,000 for you to start your own business.
However, if you are planning to build a large business landscape that will require hundreds of thousands of Naira or millions, you may not be able to get such amount of money from a microfinance bank.
Again, many microfinance banks are loan sharks. They lend money to people with high-interest rates. But not all of them disburse loans at exorbitant interest rates, there are still a good number of microfinance banks such as the AB Microfinance Bank offers loans with decent interest rates.
If you intend to get a loan from a microfinance bank, ensure that you become certain of your options. You can also checkout microfinance banks in Nigeria to get loans without collateral. This will keep you on the safe side and prevent you from running into trouble with the bank.
6. Get Business Loans From Commercial Banks
The commonest way to get a loan in Nigeria is through a bank. Conventionally, people go to banks to lend money for different purposes. A lot of commercial banks in Nigeria provide financial aids in the form of loans for various purposes.
Some of these banks group the loans into business loans, personal loans, corporate loans etc. You can get a business loan from any bank in Nigeria if the bank is satisfied with your business model.
If you present a profitable business idea that can yield high returns, the bank will be willing to lend you money because they are assured that you will repay the loan.
Some of the banks to get business loans in Nigeria are;
- Bank of Agriculture: This Bank of Agriculture (BOA) provides support and aid to those in the agricultural sector. The BOA loan has been helpful in providing farmers with capital to start-up an agriculture business in Nigeria.
The aim of the Bank of Agriculture is to improve the agricultural sector of the Nigerian economy by financing Agric startups in the country.
- Bank of Industry: The Bank of Industry is a special program for young entrepreneurs and business owners in Nigeria. BOI provides you with loans to start your business. The best thing about the BOI loan is that collateral isn’t needed for you to get a loan.
It comes with a 9% interest rate. Moreover, you need to field two guarantors during your loan application. A guarantor is a person who will repay your loan when you are not capable of paying back.
- Diamond Bank: Diamond Bank Plc is one of the leading financial institutions in Nigeria. This bank provides financial support for micro, small and medium scale businesses in Nigeria. The Diamond Bank loan is aimed at helping people start-up business ventures. Also, it has no collateral attached to it.
- Development Bank of Nigeria: The DBN loan is an initiative of the Nigerian Government to provide financial support and loans to Micro, Small and Medium Scale Enterprises (MSMEs). They give long-term loans to entrepreneurs and business owners to startup a business venture and develop the business environment.
- First Bank: Just like Diamond Bank, the First Bank of Nigeria (FBS) also provide loans and credit facilities to anyone in need of it. The First Bank loan is non-collateral and you must pass a psychometric test to get this loan. A psychometric test is an examination which is done to measure and evaluate your intelligence.
- Stanbic Bank: Stanbic IBTC loan is designed to suit any businessman; big or small. Their repayment time is very flexible and it will not empty your pocket. It is equally important for you to know that most bank loans come at a relatively high-interest rate.
There are various Nigerian banks that offer business loans to small and medium businesses. You should do your research before making up your mind to opt for any of them.
Luckily for you, you can check them out our Finance Section to see more bank loans and financial reports.
7. Government Loan Schemes
These are loan programmes sponsored by the Government to provide funds for small and medium businesses in Nigeria. They are preferred by many businessmen because it doesn’t require lots of paperwork.
Government loan schemes provide Micro, Small and Medium Scale Enterprises (MSMEs) with finance to upgrade their businesses, manage their day-to-day operational expenses, fund expansion costs and to promote their businesses.
The Federal Government of Nigeria has partnered with many agencies, banks and financial institutions to provide Nigerians with business loans.
Typically, some of these Federal Government Loans come in grants and can be attached with little or no interest rate. However, you have to compete with other business entrepreneurs to get the loan.
There are many government-funded loan programmes in Nigeria. Some of them include;
- NPower loan.
- Bank of Agriculture (BOI).
- DBN loan.
- Federal Government Loan.
8. Obtain Business Loans From Business Corporations
You can also get loans from other business organizations and corporations. Business corporations provide financial support in the form of loans and grants.
Business organizations can provide financial assistance for you to grow your business. Brands may not be compelled to give you a business loan if they do not see the potential or positive sides of your business.
The corporation may be willing to co-own your business, partner with you or buy some shares of your company if they see great potential in your business.
9. Online Loan Service Platforms
In this digital age, you have the option of getting a business loan from online loan service platforms. You might be at a point where you have nothing in your bank account and you have an urgent need for money.
When this happens, it will be impossible to go to banks to borrow money because you will do a lot of paperwork and may not get the cash immediately.
There are online loan service platforms where you can go to get business loans. These FinTech companies provide you with mobile loans in Nigeria for you to apply for loans using your smartphone.
These platforms are designed to provide people with easy and short-term loans. Therefore, if you are in need of urgent or quick loans, you can get them from online loan companies.
There are many online loan platforms to get quick loans in Nigeria. Normally, you can receive your loans within 24 hours. They are loans which are provided for a short time, typically from 3-6 months.
Some of the best online loan apps in Nigeria are;
- Aella Credit.
10. Loans from Private Investors
Finally, You can turn to private investors to get loans for your business. Certainly, these investors will request for your business plan before they can fund your business. If you have a solid business plan, potential investors will oblige to provide financial support for your business startup.
However, not all private investors will be willing to give you money to fund your business. You will need to find the right investors who have enthusiasm and interest in your business industry.
For example, if you are tailor and you need funds to expand your business (hiring more tailors, buying a bike to deliver clothes to customers etc), you may not get funding from an investor who is enthusiastic on starting oil haulage business.
Hence, your plan may be good but declined by an investor. You may not succeed in your initial efforts to get an investor to lend you money. If you are persistent, hopefully, you will find the right investor who will give you a loan to fund your business.
Tips For Getting Quick Loan For Your Business
A lot of people are faced with challenges when applying for business loans? Why do they face these challenges? The obvious reason is that they have no idea of what they intend to use the money to do should incase they get the loan.
If you want to increase your chances of getting a business loan for your business, you have to consider the following tips:
Firstly. Ensure that you have a good credit history and a good reputation. To get good credit, you must be punctual in paying back your loans.
Many banks will not consider your loan application if you have a pending or outstanding loan that is yet to be paid. A good credit score increases your chances of getting loans from banks in Nigeria.
Next, you must provide a guarantor. Most financial institutions will ask you to provide 1 or 2 guarantors before they can give you a loan. Banks will be convinced to lend you money when they are guaranteed that they are going to get back their money.
Again, you have to come prepared. Check for the documents which are going to be requested. Some of the documents that may be requested are;
- A national ID card.
- Driver’s license.
- Statement of account.
- Utility bill, tax statement.
- Business registration documents.
- Passport photographs.
These items would be requested to complete the necessary paperwork.
Equally important, you must have a solid business plan. The business idea should be a profitable and legitimate one. No financial institution would fund your business if it is based on fraud and corrupt practices.
Furthermore, you will be asked a set of questions which will be used to access you. It could be in the form of a psychometric test where you will provide reasons why you need the money. You will tell them how you intend to repay the loan. So, ensure that you are fully prepared.
Lastly, you must be persistent. Even if you have been turned down by 2 or 3 financial institutions, do not turn yourself down by giving up. Approach multiple banks and financial institutions to apply.
Before putting pen to paper to sign any loan deal, make sure that you fully understand the terms and conditions of the loan agreement. This is to avoid roping yourself into what you are not fully ready for.
Also, quantify the interest rate to know if you can be able to pay back within the window period.
Virtually, there are many financial institutions that offer business loans in Nigeria and special packages for MSMEs. We hope that this guide has been able to give you the information on how to get a business plan in Nigeria.