Securing capital for your business – bank loans

As an Entrepreneur, who has eyes on making it “BIG” in the Business world, you have mapped out the plan, done the brain work and even the leg work; strategies and plans have been penned down.  You have completed these by aligning your Business ideas to meet with the seeming demands of the economy, new Government policies etc; but there’s just one missing factor, the FUNDS required to Start! This could be likened to getting ready to embark on an important trip; bags all packed up, tickets booked, hotel reservation made, but no valid visa on your travel document. Suffice it to say that the trip will be delayed, and even in some time constrained cases cancelled altogether. But we don’t want that to happen, which is why I will be discussing how to secure financing today.

There are indeed several sources of financial lending availabletoday, ranging from Dangote’s BOI N5 Billion Funds for Small Businesses, to the YouWin Grant, to the Tony Elumelu $100 million entrepreneurship fund, to the Shell LiveWIRE since 2003,  and to the N90 million-Business Development Fund for Women (BUDFOW) which is an entrepreneurship support program under Nigeria’s Bank of Industry among several others – which should feature in  subsequent articles. But I will today, focus on core Bank Loans.

It’s no secret that Financial Institutions, especially Banks, are not necessarily proactive when it comes to giving out information about their application criteria and decision making processes with respect to giving loans. This is why this article looks to provide information that Funds seekers may find useful.

The truth is that it’s very naive to say “Banks don’t give loans”, as this is like saying your Telecom provider doesn’t want you sending SMS. That would be preposterous, as that is indeed one of the core duties of the Telecom Provider. Undoubtedly, the inability to send the SMS might be as a result of the fact that there was insufficient airtime on your phone or that the network provider was experiencing poor network services. In like manner, a Bank may refuse to give you a loan for certain reasons which could either be due to your or their insufficiency.

It is important to note that Banks’ core product is “rent on money”. They get cash from Mr. A at x% and loan or trade it at x+2%. As such, the way I see it, the bank’s ability to give out lucrative loans is as vital a business move for them as it is for you to obtain the loan. It is indeed, to say the least, a symbiotic relationship

So, if your bank turned your loan application down, it was not because they would rather dig a hole and keep all the money in there, rather, it was perhaps because you did not meet their criteria for lending. Thus, the challenge is predominantly a knowledge gap between the lender and the borrower, as opposed to the unwillingness of banks to lend.

However, you must note that even though banks are willing to lend, they are not ready to throw away depositors’ money and potential revenue simply because you want a loan. As earlier mentioned, for them to lend, it has to be lucrative business for them as well.

Outlined below are the basic conditions that must be met before a customer can apply for, or get a loan, as the case may be, from a commercial bank.

1. Opening and operating a current account for 6 months (some banks have relaxed this condition for small borrowers).

I recall, a friend of mine who tried to secure a loan from a Nigerian bank, having never done business with them. However, he had to show a 12 month banking history of 2 banks he had been banking with. This he had to do, to demonstrate cash flow; after which he successfully secured the loan required for his business.

2. The account must be satisfactorily operated; that is to say, deposits and withdrawals must be reasonably stable and regular.  It’s the concept of “he that already has, more will be given unto him”.

At this juncture, it is critical to note that banks are mandated to send details of every dud cheque to the Central Bank! Big Brother Bank is watching! And records are being kept; this takes us to the next point.

3. The Customer must have unquestionable character and good health. The bank needs to know that you are willing, alive and well enough to pay back the loan.

4. The Rationale behind the Loan – The Bank would naturally want to review your Business case for the loan. So,

5. Your Company must have a business plan.

6. Your Company’s business financial statements, your personal statements of assets and liabilities as well as those of all the business partners, members of the Board, etc must be made available in case the Company defaults.

Now that you know what it takes to be “loan-worthy, here are 3 most important factors to be considered;

Loan amount | Purpose of the loan | Collateral

Now, should you have met all these criteria, and you have no tainted history of bounced cheques, it will be incredibly surprising if a bank turns your loan application down; except of course, where the bank is facing some liquidity challenges, and have been ordered by appropriate Authorities to stop all lending. In such a case, you will be well advised to walk across the street and get a loan from some other “solid” bank”.

Time is money. Time is the currency with which we live and make a living. You may be fortunate to have a business Plan that does not require a large Capital base to startup; well and good for you!  However, if you do need Financing to get your Business going, it’s now TIME to make that bold move, keeping in mind that as much as you desire the apple hanging from the Tree, the Tree desires to be unburdened of the apple in order to bear more fruits.

IJEOMA MIRIAM NWAKUCHE