So you are a business owner in Nigeria and you need a loan for your business to run operations, purchase stock, drive sales, or expand your business. You are probably already considering various loan options, providers, and offers, you might even be about to apply but WAIT! Are you really sure that loan option is right for your business? What factors did you consider before deciding on the loan to apply for? Getting a business loan in Nigeria is kind of a big deal and you need to be absolutely sure that the loan is suited to your business capacity and finance needs before you hit apply.
In order to help you make better loan decisions, we have identified certain factors we advise you to consider before applying for a business loan. We have grouped these factors into 2 which are Business Factors and Loan Factors.
Business Factors are factors within your business which include –
- Why you need a business loan
- How much you need
- How long you need the loan for
- Your ability to pay
- Your Cashflow
Loan Factors are factors of the Loan options, providers, and offers that you may be considering. These factors include –
- Loan Type
- Tenure
- Interest Rates
- Terms
- Application Process
- Why you need a business loan
It seems like a no brainer, but you would be surprised to hear that a lot of business owners are either not exactly sure why they need a loan or don’t have a good enough reason for taking a loan. Lenders will always ask for your reason for applying for a loan so make sure you understand this properly as it plays a role in whether or not your loan application is approved by some lenders. If you are not sure about your why, check out our article on 5 common reasons why businesses take loans in Nigeria to guide your thoughts.
- How much you need
You need to be sure of exactly how much your business needs. It’s advisable no to apply for more than you need as this might affect your ability to pay (more on that later). Once you have a good understanding of why you need the loan, it would be easier to determine the exact amount you need.
- How long you need the loan for
It is important to consider this factor as it will aid your decision making on what loan providers and offers you should go for. With a clear understanding of why you need a business loan, knowing how long you need it wouldn’t be difficult.
- Your ability to pay
This is why it is important to not take more than you need, it’s a loan and you would have to pay back. Be sure of your ability to pay back the amount you are applying for. You can determine with the cash flow of your business (more on that in the next point). We also recommend that you use loan calculators to get an idea of how much you would be required to pay back for the amount you want to borrow. Most online lenders have loan calculators on their websites, feel free to use ours here
- Your Cash Flow
Simply put, your cash flow is the amount of money your business earns monthly compared to the amount of money your business spends monthly. It is important that your cash flow is positive (that is you’re making more than you spend) and consistent. While this would help you determine your ability to pay back a loan, lenders use this to gain insight into the financial state of your business.
- Loan Type
There are various types of business loans offered by lenders in Nigeria, and we explain some common types in detail in an article we would publish shortly (subscribe so you don’t miss it). However, it is important to fully understand the loan types offered by a lender before applying, send a mail or call if you have to for clarification. You can send a mail to [email protected] if you need clarity on our loan types.
- Tenure
This is the duration for which a loan provider can give you a loan. By now you should know how long you need the loan for, so you should consider the tenure of a loan provider or offer. It would be wise to find a loan provider whose tenure matches how long you need the loan for.
- Interest Rates
Simply put, this is the rate charged by a lender on the amount borrowed to you. The interest rate, along with the tenure and amount you want to borrow are what determine your repayment so it is important you consider this before deciding to apply for a loan with a provider. At Lendigo, our interest rates range from 2.75% – 5% depending on the loan type you are qualified for.
- Terms
Loan terms vary by Lender and Loan type. Always make sure you understand the terms attached to a loan before you apply. These include eligibility criteria, application requirements, repayment terms, etc.
- Application Process
Depending on how fast you need a loan, you should consider the application process of the lender before applying. How long it will take to get a credit decision? What is are the application requirements? What documentation (if any) do I need to provide? Can I apply online or do I need to visit a physical office? Answer these questions while considering who to borrow from.
As a business owner, it is very important to carry out due diligence and really consider these factors when deciding on whether to apply for a loan and which loan provider you should go to. The right decision can really help you achieve your business goals and grow your business in the long run. The wrong decision, however, may slow down your growth and lead to sleepless nights wondering how to meet up with repayments. We hope this article helps you make the right decision.
This list of factors is by no means exhaustive, if there are factors you fill we omitted, you can mention them in the comments. See you in the next post