Last Updated on November 24, 2021 by Opeyemi Quadri
One of the hardest challenges small business owners face around the world is getting bank loans to support their startups. It’s even more difficult in Nigeria where the rate of defaulters is high. So, financial institutions are extremely cautious before granting loan requests. No one wants to go out of business.
Note that there are more than 20 credit facility products offered by Nigerian banks, which can be found at: https://infomediang.com/loans-offered-by-nigerian-banks
If you have never seen a long term and condition before, banks have them when you approach them for financing. They are very stringent. They have tough rules that may require legal interpretation in some cases.
Is there a way of breaking the loan rule?
There is no shortcut, you can’t be smarter than the bank either because they’ve learned their lessons in the toughest way.
So, you can’t break the rules laid down by the banks, however, there are top tips that can make your banking loan application get approval than you least expected.
If you can brilliantly apply them, you would have better chances of joining the club of entrepreneurs who get loans from banks even through a phone call.
Practicable ways of getting a bank to finance your business
- Don’t get tied To your bank
- Forecast your cash flow
- Show visible commitment
- Have an official who trusts you
- Show Result
- Be sincere on the purpose of the loan
- Be prepared for loan T & C
- Have a bank official who uses your product
- Demonstrate your business is capable to repay
Don’t Get Tied To Your Bank
If the loan term of your bank is too stringent, try another bank, the fact that you’re using a specific bank doesn’t mean you would get a soft landing when it comes to financing your business.
What you need to know is that the new bank will need your past trading record or inflow and outflow into your account.
There are over 40 financial institutions in Nigeria including commercial banks, regional authorization banks, non-interest banks, online-only microfinance banks, and merchant banks, among others.
You have a long list at your disposal, so choose the one that best suits your needs and that can help achieve your entrepreneurial goals.
Forecast your cash flow
The aesthetically designed apartment you see on your street isn’t a product of magic, it is a collaborative effort of architecture specialists and structure engineers, they already know how the building will look like on the master plan.
Forecasting of cash flow is like a master plan of a proposed building. It shows you how much money you expect your business to receive and payout over a set period of time.
Not just that, cashflow also gives business owners how much to expect to make from sales and expenditure
If you show your cash flow to the bank, how much comes into your account from the sales you make most especially if your products are available online. This would guide the bank that your business has the financial strength to repay.
Wondering how your character could help in helping you to get a banking loan? According to a financial analyst, character is one of the factors banks use to determine the creditworthiness of your business.
Basically, financing institutions determine to who they will extend credit facilities. This is based on five key factors which experts at Houston Business Development, Inc. (HBDi) called the “5 C’s of credit:”
- collateral, and
To get a credit facility for your business, you must show character, which means the manner in which you have managed all aspects of your financial life.
What impression have you made on the prospective money lenders or investors? Bank does this by carefully evaluating your financial information, experience in the business to which the loan is meant.
As an existing business, what are the quality of your trade references? Lenders use all these to form an opinion about the character of a loan applicant.
Show Visible Commitment
Are you wondering why more online loans are in Nigeria right now? Because lending is such a lucrative business even though there are also danger when it comes to repayment.
Banks are also aware of the risk that’s why stringent rules are in place to reduce the rate of defaulters, especially during tough economic times triggered by the coronavirus pandemic.
So, how do you take the risk away from your bank? Show commitment, by showing collateral.
Show evidence that you’re the true owner of the property you plan to use as a security or equity. This way, your business loan will get accelerated approval.
While an existing business may find this easy, a new business may find it difficult.
Have an official who trusts you
Does it sound weird to you? One of the practicable ways of getting a business bank loan in Nigeria for your business is by having an insider for a thorough guide or “surety”
This is unofficial, but it’s one of the means of getting a faster loan approval even when someone tells you it’s against the rule guiding credit facility
Demonstrate Your Business Is Capable To Repay
This is closely related to your business cash flow, the bank wants to see how much knowledge you’ve gathered in your business to be able to effectively manage and repay the credit facility.
This is closely related to showing evidence that your business has the financial capacity to effectively the credit facility.
For an existing business, showing results shouldn’t be an issue. Who are your customers? What is the feedback?
If it’s an e-commerce business, do you have a store and the evidence of sales you’ve made so far?
Be Sincere On The Purpose Of The Loan
Do you have a business plan business that contains the details of your business direction? If you’re starting off, you need to demonstrate clear direction for your business to get a loan from a financial institution.
The direction isn’t enough, how exactly would the bank loan fix in to achieve your goal.
Draft a realistic plan, don’t try to impress credit facility officials, show how your business will deliver on investment.
Have bank officials who use your product
The most popular product used by banking officials is an online food store. Some of them order breakfast, launch online, making them completely familiar with the owner of the food store.
Using this to your advantage doesn’t mean you have a personal relationship with the bank officials, but because they’ve used and have trust in your product.
Be prepared for loan T & C
If you are not ready to sign loan terms and conditions, then a business loan isn’t for you. Most times, you may need legal assistance of a lawyer for a detailed interpretation.