Small Business Loans in Nigeria and How to Secure One for your Business in 2024

The number of small businesses that have come up within the last 5 years in Nigeria has significantly increased. With increase in the general cost of living and all round depreciation in economy, a lot of people are trying to figure out a way to remain financially capable. Small businesses have become the backbone of Nigeria’s economy, contributing significantly to employment and GDP.

However, it is neither cheap nor easy to start up a business and one of the biggest challenges faced by many small and medium enterprises (SMEs) is accessing finance. The capital required to start up a small business can be quite significant and there different factors that should be taken into consideration while trying to access loans for this purpose.

Importance of Small Business Loans

Small business loans are crucial for the growth and sustainability of SMEs. They provide the necessary capital for:

1. Startup Costs: Covering initial expenses such as equipment, inventory, and workspace.
2. Working Capital: Managing daily operations and cash flow.
3. Expansion: Funding the growth of the business, such as opening new locations or launching new products.
4. Technology and Infrastructure: Investing in technology, machinery, or infrastructure to improve efficiency.
5. Cash Flow Management: Providing liquidity during periods of low revenue.

The Different Types of Small Business Loans in Nigeria

Bank Loans

Commercial banks in Nigeria offer various loan products tailored for SMEs. These loans usually have structured repayment plans and competitive interest rates. Key players are First Bank Nigeria, offering SMEConnect, Access Bank with the Access SME Loan and GTBank with the QuickCredit for SMEs which provides up to ₦5 million in loans.

Eligibility Criteria:

• Business registration with the Corporate Affairs Commission (CAC).
• Business bank account with the lending bank.
• Financial statements and business plan.
• Collateral may be required for larger loan amounts.

Application Process:

1. Complete the loan application form.
2. Submit required documentation (business registration, financial statements, etc.).
3. Await approval, which may involve an assessment of the business’s creditworthiness.

Government-Backed Loans

The Nigerian government provides several funding initiatives to support SMEs. These loans often come with lower interest rates and longer repayment terms.

Notable Programs:

• Central Bank of Nigeria (CBN) SME Loans: Includes the SME Credit Guarantee Scheme (SMECGS) and the Micro, Small and Medium Enterprises Development Fund (MSMEDF).
• Bank of Industry (BOI) Loans: Provides loans for various sectors, including manufacturing, agriculture, and services.
• Development Bank of Nigeria (DBN): Offers wholesale funding to financial institutions to lend to SMEs.
• Nigerian Export-Import Bank (NEXIM): Supports export-oriented businesses with credit facilities.

Eligibility Criteria:

• Must be a registered business in Nigeria.
• Must have a clear business plan and financial records.
• Participation in training or capacity-building programs may be required.

Application Process:

1. Visit the relevant government agency’s website or office.
2. Complete the loan application form and submit the required documents.
3. Undergo a credit assessment and await approval.

Microfinance Loans

Microfinance banks (MFBs) cater to the needs of small businesses, particularly those that may not qualify for traditional bank loans. They offer smaller loan amounts with flexible terms. Key players are LAPO Microfinance Bank, AB Microfinance Bank and Accion Microfinance Bank. Some of these banks focus on low-income earners and may not even require collateral.

Eligibility Criteria:

• Must be a registered business.
• Must demonstrate the ability to repay the loan.
• Business plan and financial records may be required.

Application Process:

1. Visit the microfinance bank or apply online.
2. Submit the loan application form and required documents.
3. Undergo a credit assessment and await approval.

Online Lending Platforms

Fintech companies have revolutionized access to finance by providing online lending platforms. These platforms offer quick and convenient loans to SMEs with minimal documentation. Key players include Renmoney, Kiakia and Lidya. These platforms are known for their fast approval times.

Eligibility Criteria:

• Must be a registered business in Nigeria.
• Must have a valid bank account and verifiable business records.
• Good credit history may improve approval chances.

Application Process: to access these loans, you will need to register on the lending platform’s website or app and complete the online loan application form. You may have to submit some required documentation and wait for approval, which is usually quicker than traditional banks.

Cooperative Society Loans

Cooperative societies provide loans to their members. These loans are often more accessible and come with favorable terms. Numerous cooperative societies across Nigeria offer loans to members, such as the Nigerian Police Cooperative Society and the Federal Civil Service Staff Cooperative Society.

Eligibility Criteria:

• Must be a member of the cooperative society.
• Must have made regular contributions to the society.
• Good standing with the society.

To apply for these loans, you will go through the cooperative society’s office and submit the loan application form and required documents and then await approval based on the society’s criteria.

Private Lenders and Non-Governmental Organizations (NGOs) or Grants

• Online Lenders and Peer-to-Peer Lending Platforms: Offer quick access to funds with minimal paperwork.
• Crowdfunding: Allows businesses to raise capital from a large number of investors typically via online platforms.
• International Development Organizations: Provide grants and concessional loans to SMEs, often focusing on specific sectors or development goals.

Tips for Securing a Small Business Loan

1. Strong Business Plan: A well-structured business plan can significantly increase your chances of approval. Ensure to clearly articulate the purpose of the loan and how it will benefit your business.
2. Maintain Good Credit: Ensure your business maintains a good credit history by repaying any previous loans on time.
3. Build Relationships: Establish and maintain good relationships with your bank or lender.
4. Explore Multiple Options: Don’t rely on a single source of funding; explore multiple lenders and loan products.

Challenges and Solutions

1. High Interest Rates: Interest rates for small business loans in Nigeria can be high. To mitigate this, consider loans from government programs or development banks which typically offer lower rates.
2. Collateral Requirements: Many loans require collateral, which can be a barrier for small businesses. Exploring unsecured loan options from microfinance banks or fintech lenders can be a solution.
3. Lengthy Approval Process: Traditional bank loans can have a lengthy approval process. Fintech companies and online lenders often provide faster alternatives.
4. Limited Financial Literacy: Many small business owners lack the financial literacy to navigate loan applications successfully. Seeking advice from financial advisors or business development services can help.

Impact of Small Business Loans on Economic Growth

1. Job Creation: SMEs are significant employers. Access to finance enables them to expand and hire more staff.
2. Innovation and Competitiveness: Loans allow businesses to invest in new technologies and innovations, improving their competitiveness.
3. Economic Diversification: SMEs contribute to economic diversification by exploring various sectors and reducing reliance on a single industry.
4. Increased GDP: Thriving SMEs contribute to higher GDP through increased production and services.

Future Prospects

The future of small business loans in Nigeria looks promising, especially with great advancements in the fintech sector. There has also been increased government support, and a growing recognition of SMEs’ importance to the economy. Innovations such as blockchain technology and artificial intelligence are expected to further streamline the lending process, making it more accessible and efficient. While challenges exist, the diverse range of loan options provides numerous opportunities for small businesses to secure the funding they need.