Common Reasons to take a Business Loan in Lagos, Abuja, Nigeria

5 common reasons why businesses take loans in Nigeria in 2020

It is becoming relatively easier to do business in Nigeria, the country moved up 15 spots from 2019 to be ranked 131 on the World Bank’s Doing Business 2020 Index. While this can be attributed to a number of factors within the country, access to working capital can be said to have played a major role in this improvement. Simply put, more businesses in Nigeria have access to loans and lenders than ever before.  The recent rise in Online Lenders leveraging technology to provide lending services to underserved businesses across the country is proof of this. But, why are more businesses applying for loans, it can’t be just because they can right or because it’s easier now, of course not. 

As a business owner, it is very important to understand exactly why you need a business loan before you apply. There are many reasons why businesses in Nigeria take loans, however, based on the hundreds of loan applications we receive daily, we have identified 5 common reasons and they are – 

  1. Start a Business
  2. Purchase inventory
  3. Finance purchase orders
  4. Cover Operational Expenses
  5. Expand the business
  1. Start a Business

A lot of business owners/entrepreneurs seek out loans to start their business ventures in Nigeria. Getting a loan to start a business in Nigeria, however, can be quite difficult as most Lenders prefer to give loans to businesses that have been in operation for at least 12 months. If this is your primary reason for seeking a loan, do not be discouraged as you can secure funding to start your business in the form of Public or Private grants, or from Angel investors and Venture Capitalists.

  1. Purchase Inventory

This is a very common reason in Nigeria as a lot of businesses tend to seek out loans to purchase inventory or raw materials to manufacture products. It makes business sense to do so as you can stock up inventory with money borrowed from a lender and always have enough to meet the demand of your customers, then payback with revenue from sales. This way, you save your profit towards achieving your business goals.

  1. Finance Purchase Orders

To finance purchase orders, business owners seek loans to fulfill orders placed by their customers. This usually occurs when businesses receive large or bulk orders from a customer which they have to fulfill before receiving payment from the customer. So they take a loan to purchase enough inventory to meet the order and payback from payment by the customer once the order is fulfilled. If you have a large order to meet, you might want to consider getting a loan to fulfill it, instead of using your business funds.

  1. Cover Operational Expenses

Getting money required for day-to-day business operations is also a big reason why businesses in Nigeria apply for loans. There are a number of reasons why your business could be short on cash to run day-to-day expenses. Ranging from unpaid invoices to capital expenses, seasonal drop in cash flow, a global pandemic, and so on. However, the business must go on and you would need to cash to run it. In such cases, business owners tend to seek short-term loans to cover these expenses.

  1. Expand the Business

Growth is a major goal of any business. In most cases, in order to grow, businesses need to expand operations, product/service offerings, to new markets, production capacity, etc. When business is good, growth can help ensure that your profits don’t drop. Growth is not cheap, and it’s unlikely you would have enough idle cash to invest in a growth opportunity.  Like most businesses in Nigeria, you can apply for a loan to finance your expansion.

Now, no business owner should take a loan when they are not sure why they need one, there are times when a loan is not the right decision for your business, other times, you need a loan to keep your business afloat or to improve revenue. Whatever your reason, There are several factors you should consider before going ahead to take a loan. If you are not sure what factors to consider, we have identified 10 factors in this article to help you

If you already know why you need a business loan, feel free to check if you are eligible for a loan from us. We would be happy to meet your financial needs. Share this article with a business owner you know and see you in the next one.