Before getting a business loan, every business owner must equip themselves with the basic knowledge of the requirements essential to the bank or other financial institution .
This is critical, not only because this knowledge shows zeal and preparation on the part of the business owner, but also because it helps the business owner to rationalize the decision of getting the loan, and consider whether they are ready for such leap.
The first thing to note is that, before enter into a lending contract (a document which lays down the terms including amount, interest rate, duration, etc. of the loan) banks require a collateral (an asset given by the borrower and accepted by the lending organization as a form of security before the loan is granted). However, this process has been changed by several FinTech organizations such as which now make loans more easily accessible to small business owner. Therefore, many FinTech organizations can now give loans without the requirement of a collateral.
It is important to also be aware that many financial institutions (banks and FinTechs) give these small business loans for a short period of time, and this is mostly attributed to their internal structure. Basically, the duration of the loans are usually from 6 - 48months, depending on the agreement between the borrower and the lending organization.
Another essential thing to be noted is also the interest rate on loans. For banks, their interest rate ranges from 5 - 12% per annum. Currently, the interest rate on loans for banks in Nigeria are 11.620 % per annum. Therefore, if you take out a loan of N100,000, you would pay back N111,620 after a year. Nonetheless, for FinTechs, the interest rate may differ from one company to another. But such information can easily be seen from the FinTech organization that you have chosen to do business with.
Some other requirements which are essential to banks and other financial institution before they grant you a loan, include:
Bank Statements: This is important because it helps the lending organization ascertain whether your business can afford the loan and will be able to pay back as at when due. Bank Statements can easily be requested for from any physical location of your bank or through your bank app.
Personal and Business Credit Score: This is useful to know whether you and your business is eligible for a loan, and to also show your creditworthiness. In Nigeria, you can dial the USSD code *565*8# on your mobile phone to get instant Credit reports from CRC Credit Bureau.
Valid Means of Identification: This is to verify your identity and be sure that you are who you say you are. In Nigeria, you can submit your National Identity Card, your National Identification Number Slip (NIN Slip), Voters' Card, and/or Driver's License for this purpose.
Certificate of Business Registration: This is important to prove that you have a legitimate business. For Nigeria-based business, this proof is your business registration certificate (BN or RC) which is gotten from the Corporate Affairs Commission.
Time in Business: Businesses which have been operational for longer have a much higher degree of trust. This is why businesses which have 2 years or older time in businesses are granted loan than new businesses (0-2 years). Nonetheless, FinTech organizations are much less flexible with this time, and a fresh business owner may easily get loans here if they can prove their creditworthiness convincingly.
Thank you for reading this piece! We hope it helps you succeed in your business!
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