Microfinance Banks are financial institutions that lend money to individuals or groups of persons for different purposes. Typically, a lot of entrepreneurs prefer getting loans from microfinance banks rather than commercial banks as the microfinance structure is built on supporting SMEs. If you are looking for how to get access to credit facilities in Nigeria, look no further as this post will show you how to get loans from microfinance banks in Nigeria.
Microfinance banks provide credit facilities for entrepreneurs, business brands and organizations to fund and develop their businesses. Globally, microfinance banks have proven to be dependable in terms of providing people with loans at small interest rates.
There are lots of microfinance banks in Nigeria that lend money to individuals and Small and Medium Scale Enterprises (SMEs) at good interest rates. The role of microfinance banks cannot be understated or overemphasized as they have played crucial roles in the growth and development of various businesses in Nigeria.
Apart from being a source of business loans in Nigeria, they also help in poverty alleviation by lending out money to unemployed, jobless and low-income earners in the country. They also help farmers by providing funds for them to get access to fertilizers, seeds and farm products.
If you are a petty trader, a businessman or woman or an entrepreneur looking for money to start up a business venture, you should certainly look out for reliable microfinance banks that give out credit facilities to people.
Also, loans obtained from microfinance banks (MFBs) attracts little interest and are repaid in small instalments. The loan tenure depends on the size of the loan.
Typically, microfinance banks provide quick loans for a short-term, a loan of ₦50,000 to ₦100,000 ranges from 3-6 months up to a period of 12 months as the case may be.
In recent banks, microfinance banks have devised a new way of getting back their loans from people. This is in the form of a daily contribution where they send their staff, workers and loan officers to the offices or business locations of their customers to collect a specified amount (which is usually small). This is done for easy repayment; hence, people will be compelled and encouraged to pay back their loans without stress.
Before you acquire loans from any microfinance bank in Nigeria, seek to find out the terms and conditions along with the requirements before applying for the loan. If you meet the criteria and requirements, you can proceed to apply for the loan.
- How To Get Loans From Microfinance Banks In Nigeria
How To Get Loans From Microfinance Banks In Nigeria
Before obtaining loans from microfinance banks, you need guidance. These are the following steps towards getting loans from microfinance banks in Nigeria.
LET THE LOAN PURPOSE BE REASONABLE
Microfinance banks will never give you loans for white elephant projects. Your reason for obtaining the loan must be reasonable, legit and genuine. Typically, microfinance banks are enthusiastic to give loans for personal development and business purposes.
Your loan application may be denied if you intend to use the money for frivolities. If your loan application is genuine and reasonable, it’ll be easy for you to collect loan from microfinance banks.
The primary aim of microfinance banks is to provide funds for the growth and development of Small and Medium Enterprises (SMEs). When giving loans to people, MFBs expect to get their money back above the lent amount.
Giving loans is a business model which microfinance banks use to make money for themselves. Hence, they will not provide loans at every request. Obviously, they wouldn’t want to run into bankruptcy and loss. For this reason, they grant loans to people who need it for serious reasons like starting a business or funding an important project.
Moreover, it will be difficult to get loans from microfinance banks if you have no business or source of income. If you are starting a business or already have an established business, they’ll be assured that you will be able to pay back your debt.
As a result, microfinance banks only provide credit facilities for productive purposes such as asset procurement, educational purposes, business purposes, farming and agricultural purposes and loans for civil servants and salary earners. If the microfinance bank isn’t convinced or guaranteed of getting their money back, it will impossible for you to get a loan from them.
MAKE A DOCUMENTATION OF YOUR LOAN PURPOSE
Another step you should take when acquiring loans from microfinance banks is to document your plan ann present it during your loan application process. It is expected that the document will specify the reason or purpose for the loan; this will greatly help you to get the loan from the microfinance bank.
For instance, if you need financial assistance to buy goods and products to sell; it could be groceries, farm products etc. You make a plan for this and specify that you will repay the loan after you must have made your profits by selling the goods/products which you borrowed money to buy.
PROVE YOUR OWNERSHIP OF THE BUSINESS
Everyone claims to be a business mogul or an owner of a business but not everyone can prove it. If you own a business, you must provide evidence which shows that you are the legal owner of the business enterprise.
One of the best ways to prove ownership of the business is to present your business certificate or certificate of incorporation. If your business is yet to be registered, you can produce documents such as your business invoice, business card, shop rent receipt, goods receipt etc.
HAVE A GOOD CREDIT HISTORY
You can quicken your loan application by presenting the records and history of loans you must have acquired from other financial institutions.
If you have a nature of repaying your loans when due, you will have a favourable credit history. Again, a good credit history will be helpful in helping you to secure loans from microfinance banks.
PRESENT A GUARANTOR
Most financial institutions require you to present 1 or 2 guarantors before they give you loans. No doubt, fielding guarantors will help you in getting loans from microfinance banks; whether the bank requests it or not.
The role of the guarantor is to stand for you in case you are not able to repay the loan as at when due. Getting a guarantor can be difficult, however, getting one increases your chances of getting a loan from any microfinance bank.
PRESENT A COLLATERAL
Apart from bringing guarantors, you can present a form of collateral when seeking loans from microfinance banks. Your collateral must be tangible and should equate or be above the amount of loan you request for. The collateral should not be lesser in value to your requested loan amount.
However, it is not compulsory for you to present any form of collateral when applying for loans in microfinance banking institutions. Not all microfinance banks will ask you to bring collateral to get business loans. Petty traders and small business owners can get loans from microfinance banks without collateral.
For instance, Lift Above the Poverty Organization (LAPO) does not require collateral for business loans. The LAPO loan is a loan programme aimed at lending money to farmers, business owners, entrepreneurs and MSMEs in Nigeria.
CREATE AN ACCOUNT WITH THE BANK
Typically, most microfinance banks will ask you to open an account with them before giving you a loan. If you go on to open an account, you become a customer with them. Creating an account with a microfinance bank shows that you are serious, committed and dedicated to the bank.
Well, not every microfinance banks will request you to create an account with them. For instance, if you want to get the AB Microfinance Bank Loan, it is optional for you to open an account with them. If you decide not to open an account with them, they will not force or coerce you to create an account with them.
USE THE ACCOUNT FOR A PERIOD OF TIME
If you go on to open an account with the bank, you should be moved to use the account for a period of time. Using the account allows you to enjoy other services provided by the microfinance bank.
If you should open an account with a microfinance bank just to obtain a loan, you may not be able to operate the account as your normal bank account after you may have repaid your loan.
Hence, the account must be active, you must have made deposits and withdrawn money constantly. By doing this, you become a customer of the bank and this will help you gain their trust.
REPAY YOUR LOANS
Lastly, if you must get a loan from a microfinance bank, you must have formed the habit of paying back your loans. Repaying your loans gives you a good credit score and also helps you to get access to bigger loans.
If you fail to pay back your loans when due, you will be reported to the financial authorities and the consequences are severe. At times, your account will be blocked or you could be arrested. Therefore, ensure that you repay your loans to avoid penalties.
Words of Wisdom
Some people have the belief of getting big business loans to setup up a business venture and repay if they begin to rake their profits. If you are in this category of persons, what would you do if the business crashes or fails?
Similarly, it takes time to grow a business. There are business ventures that only brings back the capital after 2 to 5 years. So, borrow what you know that you can pay back.. The interest rates tend to increase if you fail to pay within the loan tenure.
Conclusively, we advise you to get loans when you are sure of paying them back. Do not obtain loans if you are not sure of paying them back. We hope that this post has provided you with steps on how to get loans from microfinance banks.
There are different ways to get loans from financial institutions; it varies from country to country, however, this article deals with how to get a loan from a microfinance bank in Nigeria.