Businesses require a good amount of capital to fund operating expenses or carry out expansion activities. In-order to meet various demands, companies and businesses take out business loans to gain the financial assistance they need to thrive and grow.
As the name implies, a business loan is usually a loan characteristically set aside for business purposes. It also involves the creation of debt, as with other loans and that’s something to bear in mind.
When it comes to business loans, there are different types of business loans which includes;
- mezzanine financing,
- bank loans,
- cash-flow loans,
- asset-based financing,
- And invoice financing
Business loans are sometimes used by business owners to fund new hires in the case of building competency to saturate a market. While some use the borrowed business loans toward business projects and for inventories.
Business loans are not given out for free. Most lenders charge an interest on any loan. Above all, as the borrower it’s important to know if the interest rate is variable or fixed.
In fixed interest rate, the rate remains the same for the duration of the loan and the date stipulated to payback or borrowing period. In variable interest rates, the interest changes can fluctuate based on a variety of determinants.
Of course, business loans allow businesses to have a chance at success, and as such, loans are in high demand but the sad news is that not every business that applies for a loan will get one.
Types of small business loans in Nigeria
We will be looking in detail, what some of the different business loans comprises.
This type of loan may-be obtained from a bank and it can either be unsecured or secured. Banks require collateral for secured loans, and such collateral can be lost if payments aren’t made.
Above all, the bank will wish to see the balance sheet, business’s account and the business plan, and also study the credit histories of the business in question.
Credit union loans may be also referred to as bank loans as well, since larger amounts of smaller businesses are however turning towards alternative finance providers.
The growth and performance of banks and other lenders are greatly affected by the methods of risk management, monitoring, business loan assessment, and also the pricing.
In this kind of loan, it effectively secures a company’s debt on its equity, and it offers the lender to claim part-ownership of the business only if the loan is not paid in full and also on time. The business borrows without including other collaterals but in a case of default, its risk diluting the principal’s equity share.
Mostly considered among businesses as the finance option of last resort, for smaller businesses lacking the track record to qualify for other forms of finance or credit rating, asset-based lending has become a popular choice. It implies giving out one of the company assets for borrowing, and the major focus of the lender is on the quality of collateral rather than the credit rating and the company’s prospect.
Why do small businesses need loans?
a) To start a new business:
Businesses at the start-up stage will have the need for funding to get off the ground, and of course having a good cash flow is essential to a small business. Most entrepreneurs will definitely use their own funds in business start-up while few struggle to do so, thereby seeking for external funding.
b) To expand a new product line or enter a new market:
One of the most obvious reasons to consider business loans is to invest in an expansion opportunity or entering a new market.
Further growth like expansion of a new product or entering a new market has many costs burden attached to it like advertising, acquiring new properties, increasing staff size. There is a likelihood of not having such cash at hand to cover such expenses unless by obtaining a loan to keep the new product or new market operational.
c) To purchase equipment:
Equipment is a very essential tool needed to do the job in every business for optimal growth and for efficiency. Most equipment is expensive and it becomes outdated and wears out over time.
Repairing or replacing broken equipment that is unplanned can break your budget, and not having such equipment in the office is not an option. Customers who need reliable services can be chased off by using broken or faulty equipment thereby increasing your liability and costing you more money in the long-term.
Managing the cost of equipment can be achieved with a loan that will allow you to do a perfect job with ease and also the opportunity to provide a better experience for your customers. They help you to improve your services and interaction with customers by keeping your business trending with the latest up to date new technology.
d) Cash flow:
Another major problem for small business is cash flow, and it will always remain an issue when dealing with customers who don’t pay for your services or when you have unsold inventories that need to be moved in order to bring in new products.
The issues become even more and more problematic when you include in the regular cost of your mortgage, staff, utilities, rents and inventory.
Loans provide the money to be used for working capital, and also help your business not to shrink but stay afloat when profit is low.
What is the difference between traditional bank loan and online mobile app loans
|Traditional Bank||Online Mobile Loan Apps|
|They are sometimes long and complex||Very simple to access|
|Paperwork are usually required||Paperwork are not usually required|
|Usually have strict criteria and cumbersome processes for application, and lack flexibility.||Flexible application process|
|Less digitally innovative compared to loan app.||Usually, they are digitally innovative than traditional banks|
|Aren’t operational 24/7||Loan apps works 24/7|
|Requires guarantors||No guarantor needed|
|You have to step your foot into the banking hall.||Loan apps are handy; you have them in your phones by downloading from your apple store.|
|Rigid payment options||Flexible payment options|
|Can get you disappointed during emergencies.||Very useful for emergency|
What are the requirements of traditional banks before granting loans to small businesses?
1. Purpose of Loan:
Most traditional banks will want to know how you are going to spend the loan collected. Banks usually approve loans for businesses using them for the following reasons; improving cash flow, purchasing of equipment, Purchase of inventory, Expansion projects and for payment of salaries and wages.
2. Business Experience:
Traditional banks will also consider how much experience you have. For those who have managed their company’s finances responsibly for years, this usually stands in their favour and could be detrimental to new business owners and to those who have struggled financially.
3. Business plan:
During the application process for a bank loan, you might be asked to submit your business plan. Ensure, you accurately reflect your business finances, goals, and of course other relevant information before submitting your business plans to the traditional bank.
4. Credit History:
Credit checks are usually conducted by banks before giving out loans to businesses. It is usually done to determine your business and personal credit scores. The personal credit history comes into play in businesses that operate as partnerships or proprietors. There’s a need to know your both scores before applying for a bank loan. In doing so, if your scores are below the minimum requirements, then it’s paramount you work to raise them prior to applying.
5. Personal Information:
Before a traditional bank issues you a loan, some of your personal information will be made available before you can get considered. The most common personal information requested by banks in your loan application includes; Criminal record, addresses, personal loan balances, assets, tax returns, financial statements and your educational background.
6. Financial Statements:
Submitting of your business financial statement is another requirement from traditional banks. In most cases, banks will require balance sheets, profit and loss statements, cash flow statements, financial projects and your income statements.
Business or personal property you put to guarantee the repayment of a loan is what banks define as collateral. The value of the loan you want to obtain will be matched with your collateral to determine if you are loan worthy. Structural collateral such as home or an office are what banks seek for larger loans.
8. Cash Flow:
Banks will also consider your cash flow before they consider you loan worthy. They will want to know if your business generates enough cash flow required for you to repay a bank loan on time.
9. Information on Outstanding Loans and Other Debts:
A lot of business owners make the mistake of applying for business loans before they repay their outstanding debts, and that is dangerous to you obtaining a bank loan. Banks will require information about your outstanding loans or debts because banks don’t want clients who have outstanding debts because in their opinion the person will find it difficult to repay their balance on the set loan term.
10. A Personal Guarantee:
The business owner is required to sign a personal guarantee, which is a document of written promise which states you as the business owner will use your property to repay the loan collected in the event that your business can’t pay the loan balance.
What are the requirements of online mobile loan apps before granting loans to small businesses?
- Identity Proof:
Before loan is giving out by loan app, there’s a need you provide or submit your ID proof such as driver’s license or passport
- Address Proof:
Your residential proof is another requirement needed if you want to access the loan app like; utility bills.
- Income Proof:
In order to avail yourself of a quick loan, you need to submit your income proof documents.
How to make sure you pay back your small business loans.
- Don’t spend the business loan on personal needs
- Consistently remove your month payments/ set up an auto-debit from your savings account.
- While borrowing be prudent
- Each month increase your EMIs by certain percentage
- Refinancing a loan should be considered
- Always stick to your business plan
Best business loan mobile apps in Nigeria
Is one of the financial technology firms with the vision to become Nigeria’s leading digital financial institution which is dedicated to SMEs through the use of innovative and technology practises. They provide easy and fast access to working capital which suits their customers finance and business needs. Business owners can apply for short term loans on their platform and also finish their application online with ease.
They can be located at Workbay 1st Floor, Lagos City Mall Onikan, Island 101231, Lagos.
2. Carbon Loan App:
Formally called PayLater is an online lending platform that has the capacity of providing short-term loans to help cover urgent need for cash. With the basic requirement and with your android device, you are good to go for a loan on PayLater 24 hrs a day; 7 days a week with the application process so quickly, and allow you know your status within seconds/minutes.
Currently, two loan packages are offered by Carbon loan app which is the Pay Later (loans available to all) and Pay Later Plus (Available for salaried earners).
3. Quick Check:
This is one of the modern lending platforms in Nigeria currently, either for small business or for individuals. Users can access quick loans for any amount according to the platform without any collateral for either 15 or 30 days duration. The faster you repay the loan, the higher your credit score which opens the opportunity for you to gain access to even higher amounts.
4. Kia Kia:
it means quick and fast in the Yoruba dialect. They offer both unsecured and secured loans and also take part in profit sharing business transactions but it should be well structured. They throw most of their weight in small, micro and medium enterprises that have huge growth potentials, with no access to credit from traditional financial bodies.
5. Fast Credit:
The lending app which started in 2014 and was also incorporated the same year, has pitched a niche in the business. They offer loans to SMEs without collateral and no need for much paperwork. The company headquarters is located at Motorways Centre Ikeja, Lagos Nigeria. www.fastcredit-ng.com (+234-18885046)
One of the leading online lending platforms in Nigeria where you can access 5 million in one transaction for a loan all within 5 minutes without no collateral, no paperwork and no visit to the bank. Also the platform leverages a strong credit algorithm, and scoring is instant and disbursement almost immediately. They offer products like; Specta4business, Spectra Individual, PayWithSpecta, Ultra Credit Card, Specta Prime, Specta Score.
7. EZ CASH:
This is a quick loan that persons/business who tick all boxes in terms of eligibility criteria set can enjoy, and also it allows customers to choose a repayment option on their own ranging from one to twelve months.
They are an impact driven, specialist SME financier. They provide business loans to entrepreneurs by helping them succeed. They have presence in about 14 countries in Africa and the Middle East where they help businesses to grow and succeed, and also have their headquarters in Mauritius.
In Lidya loan, you have the opportunity to expand your business and also generate more income. They provide you with a loan based on your cash flow in your bank account and it’s done without collateral, and they provide you the opportunity of turning every invoice to an opportunity for revenue. They have their presence in 3 countries.
Providing customers with short-term and affordable consumer credit to individuals that have limited access to finance and funds is their mission. They give quick loans to individuals within a matter of minutes. They also leverage on data and technology to offer access to finance. Their lending process is fully online via the Carbon Mobile App.
They provide cash loans to groups, individuals and they also offer Point of sale finance for consumer goods. The firm operates by using risk-based pricing to ascertain repayment of loans to individuals that are employed.
12. C24 Capital:
They provide retail loans for consumers in need of a quick financial solution that suits your income, needs and your pocket. Their online loan application is completed within 5 minutes and a loan feedback is sent almost immediately to you, and you don’t need to break your bank for loan repayment because of its flexible repayment structure. They offer Quick cash loans, personal and business loans.
13. Quick Credit:
This is a technologically deployed lending platform that will provide you with micro loans for short-term duration to help meet and cover your financial needs. After filling-in your brief information, you get your application reviewed within 5 minutes. Their loans are aimed at financing working capital.
Are you cash trapped? Is your business looking for a working capital loan? Or you are in need of money to finance that expansion project?
Have you considered taking a loan to ease the financial burden on your business? You need to take a different and sometimes unconventional method to get your dreams to work.
Today you have all the information you need to apply for a business loan. You can visit the website of any of the loans that meet your peculiar needs and apply. Cheers to your business success.
Image Credits: All images on this website are sources from Getty Images, Pexels and Unsplash.