7 Things You Should Do Before Applying For A Loan In Nigeria.
As your business grows, you reach a point where opportunities present themselves for exploitation but just do not have the funds required to take proper advantage of it. Obtaining a business loan is often the only way out. Here are seven tips on what you need to do before applying for a loan for your business.
1. Register a Business
The last thing any lender wants is to grant a loan facility to someone who lacks the understanding that they are not the business. They want to know you understand that in order for their investment to be repaid, there must be clear and distinct separation between yourself and your company’s finances.
Accountants call it ‘the business entity concept’. And, registering or incorporating a business and having a bank account exclusively for business purposes is the way to go.
2. Be Financially Transparent and Accountable
Lenders do not arbitrarily allocate funds to businesses without going through laid down qualifying criteria. One of the most important criteria that is considered is how accountable and transparent the business is. They want to know if you have proper books of accounts through which accurate financial statements are produced. There are numerous accounting practices which can help you out here. Make sure you have proper records of all your transactions even down to the funds spent buying water at the office.
3. Have a Business Plan and Be Specific
A business plan will detail how you intend to go about that expansion and opportunity which you have identified. Make sure to be specific on the major expenditures that are needed to engage that opportunity and the financial returns that are reasonably expected.
Data is key in this area and the quality of the projections you make are dependent on the quality of data you are able to collect. Lenders are especially keen on this particular aspect of your loan request. So, make sure to use data that is credible and accurate.
4. Explore your Options and Calculate the Cost
Look around for lending bodies and identify those with affordable rates. It is fine to obtain a loan to a desired amount but it can be detrimental to your business if you don’t truly understand the cost. So, make sure you calculate the full amount of interest you are expected to pay back on the loan and determine whether it is right for you or not.
In the event that you deem the loan to be right, draw up a repayment plan and possibly attach it to the business plan you have prepared.
5. Choose your Lender Wisely
It is always best to do business with lenders who are reputable and interested in the growth of businesses aside from their own profit initiatives. Stay away from lenders who are just interested in making ‘quick money’ without any considerations to your business at all. In Nigeria though, most lending bodies with the right orientation are those that are backed by government in their bid to boost SMEs around the country. Be on the lookout for government loan programs and prioritise them over non-traditional lenders.
6. Build a Good Credit History
Lenders are more than willing to transact with businesses that come with a good credit history. In fact, they are willing to reduce their lending rates once you can prove that you have been a ‘good debtor’ over time.
7. It Pays to Pay Your Taxes
The Nigerian government is firm in its determination to realise more revenue from taxes. The tax net is being widened by the authorities with every single move. So, your business is at risk of closure if you fail to be compliant. More than that, responsible lenders are hardly inclined to do business with any entity that fails to pay taxes.
Thats it! You have to be prepared to qualify for a loan. We hope this helps in getting your business growing.
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