Lack of sufficient fund is one of the highest causes of a business failure, and a common complaint of business owners in Nigeria is the difficulty experienced in getting a loan to finance their business. Our findings during a radio awareness programme on credit information revealed that a lot of people are looking for ways to fund their businesses.
The question most asked was “how can I get a loan”?
Unknown to a lot of loan applicants, there is a lot of consideration that goes into a bank’s decision on whether to grant you a loan. These factors, that can increase your chances of getting a loan from a bank or other financial institutions, are explained below.
A popular belief is that people get loan approvals when they personally know the bankers in charge, or when they know someone who knows them. This notion arises from the fact that personal character is very important when assessing your eligibility for a loan. A bank is a business that also needs to make money from the deposit of its customers. To this end, before a granting a loan, the bank needs to know what type of person you are.
Your credit history comes into play here. The bank will be interested in knowing the types of loans that you have had in the past, and how they were repaid. This information gives an insight into your financial character, and this is one of the ways to improve your chances of getting a loan. When you have a good credit history that shows that you have been diligent in repaying previous loans, the bank perceives you as someone credible enough to be granted a loan.
How much debt can your business sustain? It is not enough to show that you repaid past loans very well. The banks want to know if your business is currently viable enough to repay the loan you are applying for. This is even more difficult for startups who are just launching their business ideas. Because there is no growth yet, it is difficult to determine if the business has the capacity of repaying the loan.
Earlier in the year, the financial sector was affected by the uncertainties surrounding the 2015 general elections. In times like this, when the political condition of the country is uncertain, it is possible for banks to slow doing their lending activities to minimize their risk exposure. No one wants their business affected negatively by a new government regulation.
For a person that wants to get a loan, timing is very important. Applying for loans during such times may affect your chances of getting a loan.
Collateral is an asset that the lender takes as a secondary source of payment, in case you are unable to repay the loan. Often times, people who complain that they have been denied a loan, may have tendered a collateral which was deemed insufficient by the bank.
Considering that the lender will have to dispose of the collateral to recoup the loan if you default, you stand a high chance of being granted a loan when you tender a worthy collateral.
A lender wants to see how viable your business is. It is important to demonstrate that you have a forward-thinking business that can turn profit. One of the best ways to prove to a lender that you deserve a loan, is by providing a business plan that shows how the loan will increase your revenue.
For a loan applicant, taking all these factors into consideration before requesting for a loan, will go a long way in increasing the chances of getting a loan.
Have you ever been refused a loan by a Nigerian bank? Share your experience with us on Twitter (@CRCCreditBureau), or Facebook (CRC Credit Bureau Limited).