Things You Should Look Out For When Applying For A Loan For Your Business

A small business loan gives you access to capital to invest in your business. The funds can be used for various purposes, including working capital or other related needs such as renovations, technology and staffing, business acquisitions, real estate purchases, and more.

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These business loans provide you as a business owner with funds either as a single payment or credit line; this is a preset borrowing limit that can be tapped into at any time. The borrower can take money out as needed until the limit is reached. In exchange for this funding, your business agrees to repay the money it borrows over time, plus interest and fees.

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Getting a business loan can sometimes be difficult. In 2020, 37% of small businesses applied for financing. Of those applicants, 76% received some funding, but just 37% qualified for the full amount they requested.

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However, let’s take a look at some benefits of a loan for your business.

5 Benefits of a Loan For Your Small Business

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1. Expand your business: If you are already running a growing business and need to expand, loans might be the best option to fund your expansion. Also, you must ensure that you have a plan to get profits so that when you repay the loan, you can repurpose your profit into that area of your venture.
2. Build your credit score: If you are a business owner, a small business loan can help you build your business credit. This could help speed up your approval for a good number of financing options in the future as long as you repay your loans in good time and are complete. You’ll be able to achieve a strong score. 
3. Solve Cash flow problems: You can use a small business loan to maintain a positive cash flow, especially if yours is inconsistent or sporadic. Using appropriately can help you afford consistent expenses and act as a buffer against future financial challenges.
4. Cover emergency expenses: Financial emergencies can happen to any business, and loans could help easily offset those impromptu expenses.
5. Purchase Inventory: Imagine you run an Umbrella business, and you know it is a seasonal business; you may want to use a loan to stock up against the rainy season because, during that period, the cost of purchasing may be high for you. Using your loan, you can invest in a large inventory purchase of umbrellas to prepare you for the busy months ahead. 

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In this new paragraph, I will explain what you need. There are no one-size-fits-all business loan requirements; this is just to give you a general idea of common business loan requirements in Nigeria. 

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Before applying for a loan, make sure you understand their complete requirements. Below is a list of what lenders may require in Nigeria:

1. Bank Statements: This is needed to evaluate your business finances. Every lender in Nigeria what to see how far you’ve come and to ascertain if you are capable of paying back your loan as at when due. Your statement will show your cash flow and give lenders insight into how you manage money coming into your business. 
2. Personal and Business Credit Score: Lenders often check your credit score to confirm your business's creditworthiness. Examples of these institutions are CRC, First Central, etc. Ensure you build a good credit score for your finances and business. Check this article out by CRC.
3. A Valid means of identification: This is required to ascertain who you are. Any government-issued ID would pass as a valuable means of identification, e.g. International passport, driver’s license, voters card, national ID, etc. 
4. Certificate of Business Registration: This is proof you have a legally operating business in Nigeria. For a Nigeria-based business, this proof is your business registration certificate (BN or RC). You might want to consider registering your business first if it hasn't been before applying for that loan. 
5. Time in Business: They may require knowing how long you have been in business. The more years you have been in operation, the more likely your chances of getting that loan are. 

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5 Factors to Consider Before Applying For a Business Loan in Nigeria

Before proceeding with your application, it is vital to understand if a particular loan option is suitable for your business. Take these five factors into account to make better loan decisions.

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1. How much do you need: It is better to be clear on how much you need and want to apply for and not go above this, so it isn't harder to pay back.
2. How long do you need the loan for: With a clear understanding of why you need a business loan, knowing how long you need it wouldn’t be difficult. This would help you identify the right providers to go for.
3. Your ability to pay: One thing to note is that all loans must be repaid - there is no way out of payment. You can determine with the cash flow of your business how you can pay back with your business cash flow. We also recommend using loan calculators to get an idea of how much you would be required to pay back for the amount you want to borrow. 
4. Your Cashflow: This simply means the amount of money coming into your business. This sometimes helps lenders get insights into the financial state of your business. Your cash flow must be positive (that is, you’re making more than you spend) and consistent. 
5. Interest rates: In simple terms, this is the rate the lenders charge on the amount borrowed from you. This varies from lender to lender. You must watch out and learn about a specific lender's interest rate before applying for a loan with them. 

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I would love to share some loan options available to you as a small business owner in Nigeria to check out:

• Banks: For the longest time, banks have been the go-to option for loans. Banks primarily provide secured loans to businesses, which simply means that any business seeking a loan would need to provide some form of security (which in most cases is collateral) to get the loan.
• Online lenders: With the rise of digitised activities for businesses, online solutions are not left out for small businesses who want to take loans, and these online lenders can disburse funds in less than 48 hours. They often offer short-term loans and have a limit on the amounts they can borrow. Examples of online lenders are Lendigo, Renmoney, Lidya, C24, etc.
• Government: The government, through various parastatals and agencies, offers loans to small businesses, but this might take a more extended period to process. If you do not need that loan urgently, you can consider this option for your business. Examples of government agencies, parastatals, and loan schemes in Nigeria for business loans are SMEDAN, Bank of Industry, YouWin, N-Power, etc.

In conclusion, it is crucial to do proper research and findings on loans or lenders to which you want to apply. Ensure you have the proper records in place for your business using Dillali. Your repayment plan should also be included in your research; your business should have a repayment strategy before you even take out any loan to avoid problems.

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