Small Business Loans Nigeria - How Do You Get A Business Loan?
Obtaining small business loans is a challenge in Nigeria. Many individuals who have business ideas are limited because of lack of funding.
||There's hardly any business you want to start that you don't need capital. Where will that capital come from?
Well, there are several options.
You could raise your business capital from your savings
You can borrow it from a friend or Borrow it from a bank
The income level of most Nigerians is very low. Hence, it is difficult to save enough to invest in a business especially if you are a low income earner.
Borrowing from a friend may not be a viable option because if you're poor, it's also likely that you have a circle of friends that are also poor.
That leaves the option of borrowing from a commercial bank.
The commercial banks make great boast about their commitment to helping SMEs. But how easily can one get small business loans from a commercial bank?
Let's take the case of Zenith bank, one of the biggest banks in Nigeria.
The bank has reserved over 3.7 billion Naira for investment in SMEs. That is a huge amount . . . something that can substantially grow a good number of SMEs.
Wait. What is the criteria for accessing this fund?
The first is that the company must be a limited liability company. Most small business people are one man businesses or sole proprietors. This criteria disqualifies them.
A second criteria is that the bank's equity funding shall be a minimum of 20 million Naira and a maximum of 500 million Naira.
Most small business people are looking for just =N=500,000 to 3 million Naira to start their business. Giving them =N=20 million will confuse most of them. They really don't need it for the kind of business they want to run.
See full details about Zenith bank's SME scheme at . . . http://www.zenithbank.com/smallbus.cfm
It is clear that Zenith bank and most other banks are not targeting the small business people that form the larger share of the SME market. I call this group the small small business people.
The small small business enterprises usually have between 1 - 10 employees. And they are mostly sole proprietorships.
The business starts with a man with an idea. He seeks for funds to pursue that idea and grow it into a business. He then employs 1 - 5 people to join him in running the business.
The commercial banks can't help them unless they have grown to a point where they have more structure, the capacity to manage 20 million Naira or more, and an established market share.
Those conditions are tough for a one-man business with two employees and struggling to create a brand.
So, what other option for obtaining small business loans can you explore?
There is the option of using the services of a microfinance bank.
Microfinance banks take more risks and offer small business loan as low as 20,000 Naira. However, they charge a higher interest rate . . . interest rate as high as 6% per month.
So, if you intend to use the services of a microfinance bank, be sure of your numbers. Otherwise, you will run into trouble with the bank.
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