The joy of every business owner is the continuous availability of cash and to experience of continuous growth without taking any business loan. However, the truth is that without accessing the right business loan to ensure a constant cash flow, a business, especially in a country like Nigeria, might not survive in this harsh economic climate.
There is always a vast distinction between businesses that enjoy constant cash flow and those that don’t, who merely exist without clear access to funds, because constant cash flow ensures that businesses enjoy continuous progress. The difference between businesses always comes down to cash. Highly successful businesses have ensured a habit of making sure that they always have cash in advance to tackle all issues, which has helped them to always succeed. I can tell you from experience that for businesses that are stuck in the rut of a lack of funds, creating plans is difficult because if no clear access to sufficient funds is ensured, no matter the size of the business, whether small or large, creating plans will be nothing but dreams. This does not sound professional to me at all.
What Is A Business Loan?
A business loan involves borrowing funds from a trusted bank or financial institution. By securing a business loan, you gain access to immediate capital, which I can testify to the fact that it is required for navigating through the different phases of business development.
To put it in simple terms, a business loan is a financial arrangement where a lender provides funds to either a new or existing business after various agreements have been reached between the lender and the borrower. Over the years, I have discovered that businesses usually borrow loans for multiple business needs, such as to invest in working or office equipment, expansion of operations, managing cash flow, as well as hiring of employees. There are different types of business loans, but I can say that numerous categories can all be grouped into 5 major types of business loans.
5 Types Of Business Loans in Nigeria
I want you to first realize that to secure any type of these business loans for your business, all financial institutions require you to demonstrate a positive track record, creditworthiness, and the right financial responsibility. So what then are the 5 major types of business loans among the long list of loan types:
1. Term Business Loans:
This is the most common type of business loan. Term business loans are short-term loans that, in most cases, have a tenure not larger than 2 years, though in some cases, the term of payment might also extend further. In these loan types, you are mandated to state the purpose of the proposed loan. The amount you can access with this loan is usually not too large, though it still depends on your credit history, and when you pay back the money, it is usually with interest.
2. Working Capital Loans:
Working capital loans are also called operating business capital. Suppose you need funds to cover your day-to-day operational costs like clearing employee salaries, rent, and utility bills like electricity or water. In that case, working capital business loans are best for your business. They are also short-term with a tenure of 2 years. When sales are not going as planned or no predictable revenues seem to be in sight, you can always reach out to banks, online lenders, or financial institutions to bail you out.
3. Commercial Business Loans:
As working capital loans are used to cover the day-to-day operational costs of a business, commercial business loans are used to tackle major capital expenditures. Commercial business loans are, in most cases, hard for small businesses to access because to get this kind of loan, banks will check to see if you have a high turnover. These loan types offer immediate capital for up to a 5-year tenure. The loan is also for businesses or companies that have been in operation for at least a year, and as I stated earlier, with a large turnover.
4. Startup Loans:
This is one of the most difficult types of loans to access. As the name implies, this type of loan is not for everyone, but only for startups. If you are an entrepreneur who wishes to start a new venture but has no funds, you can simply approach lenders who are willing to offer startup loans to entrepreneurs.
5. Equipment Financing:
This business loan allows businesses to raise funds and capital for purchasing essential business equipment such as new technology, working tools, software, hardware, and machinery. Equipment financing loans, in most cases, come as a secured loan, that is, they are expected to be backed by business assets. As a result of this, if the business owner cannot seem to make loan payments, the lender has the right to seize the asset that serves as security.
5 Benefits of Business Loans in Nigeria
1. Easy Access:
As the easiest and surest way for businesses to access funds, business loans are easy to obtain. In most cases, they only require minimal documentation and sometimes do not require a guarantor from the borrower. You are even allowed to choose your term of repayment.
2. Liability-free:
Loans empower businesses to control costs and ensure growth. The loan you get from the bank, if used wisely, can serve as an asset rather than a liability. When you apply for certain types of business loans, you might not even be mandated to present any collateral.
3. Business Expansion
As your business grows, a time will come when you desire to open a new branch, expand operations, or even diversify product lines. When you get to this junction, you might not have the capital to scale to this new height, but moneylenders are always ready to be of assistance.
4. Plans:
Whether you’re trying to secure a short-term or long-term loan, you’re at liberty to choose a convenient time to pay back based on your business foresight. I will, however, advise you as a business owner to chase after loans you can easily pay back within your agreed-upon tenure.
5. Reasonable interest rates:
When personal loans are driven by high interest rates, business loans have lower interest rates. This is because, in most cases, these loans are usually subsidised by the government. This is because the government sees it as a way of enabling businesses to find funds to hire more people. Also, it is due to the rising competition among money lenders that they have to find a way of making their interest rates lower to attract entrepreneurs, this is especially true if your loan is in the long term.
How to access loans for your business in Nigeria
1. Banks:
Traditional banks all around the world offer business loans tailored to your cost needs and credit history. However, you must take note that all banks have different terms and conditions that you must fulfill to be able to qualify for their loans.
2. Loan Lenders:
Other platforms, especially microfinance banks like AB Microfinance Bank, KUDA Microfinance Bank, VFD Microfinance Bank, LAPO Microfinance Bank, ACCION Microfinance Bank, and Sparkle Microfinance Bank, among others that are in the money lending operation and business, also give business owners loans. Explore options provided by alternative lenders who may offer flexible terms.
3. Government:
Whether you are interested in starting a new business or you are interested in expanding your existing business, governments in all countries provide opportunities for interested applicants to apply for loans, whether short-term or long-term. This also applies in Nigeria, where the government of Nigeria has attempted to support businesses through Federal and State government-backed organizations like the Nigerian Export-Import Bank, Bank of Industry, the Bank of Agriculture, the Central Bank of Nigeria, the Development Bank of Nigeria, and the Small and Medium Enterprises Development Agency of Nigeria.
4. Online Platforms for Loans:
Online platforms in Nigeria like Branch, Prospa, OPay, Aella Credit, QuickCheck, Carbon, PalmCredit, Carbon, Renmoney, and FairMoney specialize in the provision of loans to businesses.
