I am a Small Business Owner. What is a loan, and how do I apply for a Small Business Loan from a bank?
Amaechi Nwokolo, Port Harcourt
A loan, in finance parlance, is the lending of money from one individual, organisation or entity to another individual, organisation or entity, at an interest rate. It is evidenced by a promissory note which specifies, among other things, the principal amount of money borrowed, the interest rate the lender is charging, and date of repayment.
A loan entails the re-allocation of the subject asset(s) for a period of time, between the lender and the borrower. In a loan, the borrower initially receives or borrows an amount of money, called the principal, from the lender, and is obligated to pay back or repay an equal amount of money to the lender at a later time.
The loan is generally provided at a cost, referred to as interest on the debt, which provides an incentive for the lender to engage in the loan. In a legal loan, each of these obligations and restrictions is enforced by contract, which can also place the borrower under additional restrictions. As the borrower, you are expected to pay back and with some interest.
Let’s now proceed to the requirements you may need to meet in order to secure a loan from a bank in Nigeria. Some of the things you need to apply for a small business loan from a bank include:
- Registration with the Corporate Affairs Commission, and possession of a Certificate of Incorporation.
- Profile of your management team, including your Curriculum Vitae and those of other senior members of your team, particularly those who will sign the loan documents.
- A business plan which clearly states the need for the loan, how much is needed and how it will be re-paid. The business plan should also include your business’ financial statements, including an income statement, balance sheet and cash flow statements. Equally important for the business plan is a 12-month cash flow forecast, showing the capacity of the business to generate enough income to re-pay the loan.
- Personal Statement of Assets and Liabilities of the partners or directors of the company.
- Amount to be contributed by the business to the funding and the source of the funds.
- Statement of Account from your bank for the past six to 12 months, preferably from the bank you are applying to for the loan.
Your ability to meet the foregoing requirements will position your business to apply for the loan with an above-average chance of success. However, approval of the loan application is always at the discretion of the bank. The lender has the last word!