Charles Nwaoguji [email protected], +234 8032715118
Over 97 percent of all business entities in the Nigeria are small businesses. These businesses represent over half of the private workforce and the private-sector.
Funding is a critical part of every business. Even though experts generally agree that it is not the biggest problem facing entrepreneurs, many of them still believe that it still ranks among the first five. Like everything in life, these funds have criteria that must be met. Most corporate bodies listed here fund already established businesses. Some of them finance business ideas but this is only in very rare cases. It is generally easier to get funding for business expansion than for a so-called exciting business idea, which may or may not turn into a success.
Starting a business involves a lot of moving factors, but the most important one is financing. You are going to need to spend some time evaluating your business model and writing your business plan before you can really determine the type of loan you need and the best way to secure that loan. As your business grows, your lending needs will change, so take the time now to understand the differences between lending and investing so you can be ready when your company starts to grow and needs to adjust its financing.
It should be understood that funding plays important role in any business. How do so many small businesses get started? It all begins with the right type of financing. Whether you’re just starting up or you’re expanding your existing business, you need money to get rolling.
This guide will help you figure out the type of loan you need for your business and will look at the step-by-step process of securing a business loan:
•Determine the type of loan you need, Look in the right places for a business loan, Find help applying for your loan from business professionals, Talk to your preferred lender ahead of time, Write and present your business plan
Common lending terms
With all the options available for business financing, it’s easy to get confused by terms. Here are common terms you will see associated with getting a business loan
A lender is someone who lends you money through debt capital, also called loans. Lenders look for low-risk opportunities and require businesses to put up a substantial amount of collateral as a way of securing a loan. Because loans are low-risk, the lender doesn’t charge a substantial interest rate.
An investor looks for a more high-risk opportunity to get a higher reward and will put their money in established businesses that have the potential for high growth. Investors generally expect to be involved in the business in the form of a seat on the board of directors or some other role in which they have a say in how the business is managed. For the most part, investors want to get in on a company while it is in its early growth stage, and they get out once the business has reached a certain level of growth.
Capital is essentially wealth in the form of money or assets that you, as the business owner, can bring to the table when you’re seeking a loan or investor. This can be in the form of personal savings, credit cards and loans from friends.
Banks will only lend money when the business owner can prove they have enough capital to bring to the table.
Before you can get a traditional bank loan, you need to have collateral, generally in the form of your house although other assets including land, cars, watercraft, motorcycles and equipment that has a title of ownership can be used as collateral.
Understand the risk involved with your business venture before you put up collateral–the bank will take your house, car or whatever else you put down if you default on your loan. Make sure you have an accurate assessment of what your collateral is worth before you apply for a loan so you don’t wind up unpleasantly surprised when your bank assumes it’s worth today’s market value, not the value that it was when you bought it. If you don’t have an asset to use as collateral or are uncomfortable with the idea, then you’ll want to seek out a source other than a bank for your business lending needs.
Where to find business loans
You don’t need to finance your business using just your personal savings, although there are plenty of businesses who get started that way. Here are some places to explore for your financing:
Lagos State has N25 billion dedicated to funding SMEs. The fund is divided into two categories: micro and small businesses. Under the micro, businesses can access up to N500, 000 loans with an interest rate of five percent and a tenor of one year. For the small business category, businesses can get up to N5 million for a tenor of three years. Many small businesses operating in Lagos obtained loans from LSETF last year and many more will get this year.
If there is anywhere entrepreneurs can get cheap or single-digit funds (often at nine percent lending rate), it’s from the Bank of Industry (BoI).
The BoI has a number of funds that entrepreneurs of all levels can access. First is the Graduate Entrepreneurship Fund (GEF), which is meant for serving members of the National Youth Service Corps (NYSC). Candidates are allowed to submit their business ideas, which are then reviewed by a team of experts. The NYSC members whose ideas are marketable and bankable are then selected, trained for four weeks and then given between N500, 000 and N2 million.
There are also the Cottage Agro Processing (CAP) Fund for small and medium agro processors; Nolly Fund for players in the Nollywood industry, as well as Fashion Fund for designers and other players in the value chain.
The bank has other matching and managed funds, including a fund for the automotive industry. Through 122 business development experts, it has become easy for entrepreneurs to access funds. The bank also has a N5 billion fund from Africa’s richest man Aliko Dangote to finance SMEs at a single digit rate.
Tony Elumelu Fund
Tony Elumelu Foundation has $100 million for 10,000 African entrepreneurs. This will continue to be available for another six to seven years. If you are in agriculture, fashion and design, light manufacturing, ICT, and solid minerals, among others, then you may apply for the on-going Tony Elumemu Fund. You can be one of the 1,000 lucky entrepreneurs to be shortlisted.