Old Nollywood movies made it seem like all one needs to get a loan from any Nigerian bank is to have a landed property that can be used as collateral. From movie plots where a person takes the deeds to a property to the bank to get a loan without the knowledge of other family members to a family getting kicked out of their house by the banks after the death of the breadwinner because the property has been used as collateral.
Movies oversimplify the loan process by overemphasizing collateral. To be sure, banks do ask for collateral, that is how they mitigate their losses to make sure that a business can pay back their loans. Having a landed property that can be used as collateral does increase the chances of an individual getting a business loan and at better terms.
What banks actually require for a business loan
Banks don’t usually do collateral lending, you cannot just walk into a bank with the papers of your property that is worth say #10m and expect them to give you #2m loan, no questions asked.
What the banks require above anything else for a business loan is cash flow. They need to make sure that the business they are borrowing money to generates enough cash flow to cover the loans plus interest. For example, if the accounting book of a business shows that it generates a monthly cash flow of #10m, #7m of which goes back into the business as operating expenses with the rest as profits, such a business might not even require collateral to get a loan of say #10m for growth. The business has proven that it has enough cash flow to pay back its loans.
Proper accounting of cash flow is the most important requirement of getting a business loan. While collateral and other factors can enhance your chances of getting a loan, without cash flow, your application might not even be considered.
Requirements to get a business loan
If you need a business loan in Nigeria, here are the requirements you will need to put in place;
Cash flow: a proper accounting of how much the business makes, expenses and debts. A good cash flow is sometimes enough to get a business loan without other requirements.
Collateral: It can be a landed property or any other asset that mitigates the bank’s losses in case the borrower comes short.
Guarantor: This can be an individual or another business that will vouch for the good character and ability to repay the loan given to a business.
Good credit score: There are credit bureaus that keep a record of how individuals and businesses repay their loans. Those that payback their loans within its tenor and do not default on payment get a good credit score. A bad credit score can affect your ability to get a loan even if you meet other requirements.
can I get a business loan without a business?
No, banks don’t usually give business loans to non-existent businesses. They give loans to an existing business with verifiable cash flow.
Can I get a business loan in Nigeria without collateral?
Yes, if your business has a good cash flow some banks will give you loans without collateral.