Most of the time, getting to start a business can be daunting when one considers the financing aspects. And when the hope of getting one is next to non-existent, starting up a business can be quite challenging. Those who started their businesses during the economic crisis would testify to the fact that they didn’t find it so easy, getting financing for their business. But with the shift to SMEs and the offer of a helping hand that comes with it (although some may reason that the helping hand come with some noose attached), some business owners can actually get some respite for their business launch. So, to answer the question to whether or not you can get a business loan, yes, you can get that business loan. You’ve just got to know some things first.
Most of the times, when small business owner go to get a loan, they go with something like: business plan? Check! Unmitigated charisma? Check! Vision and unchecked passion? “Come on, I have a dose of those that could feed the universe, so check! But the thing is, as great as these attributes are, they alone can get you through a bank’s door, but won’t help you get a loan out of it.
Bankers say that most young business owners make the mistake that they could get a loan from the bank once they meet the already mentioned criteria. A potential loan applicant to a bank needs to follow some guidelines and meet some prerequisites before getting a loan from the bank, bankers said. But what are they? That was what Entrepreneurship+ went to find out. Here is what was found:
Have an existing account with the bank
The bank you are approaching expects that you have an existing relationship with them before you approach them for a loan – that is, you must have an account with the bank. And when they say an account, they mean a business account. Investigation reveals that at Wema Bank for instance, the first rule of the thumb having a business account running for a minimum of six months to one year before you can approach them for a loan.
Have an existing account with the bank
The bank you are approaching expects that you have an existing relationship with them before you approach them for a loan – that is, you must have an account with the bank. And when they say an account, they mean a business account. Investigation reveals that at Wema Bank for instance, the first rule of the thumb having a business account running for a minimum of six months to one year before you can approach them for a loan.
According to a source within the bank, the turnover from the account will go a long way in determining the eligibility for a loan and how much one gets. The turnover here means how much is deposited into the bank on a daily basis.
To open a business account, some basic guidelines must be met. For a Limited Liability Company, these documents must be supplied: Photocopy of Certificate of Incorporation of your company, Certified true copy of Memorandum & Articles of Association, Certified true copy of Form C07 (particulars of Directors), Certified true copy of Form C02 (Allotment of shares) and Board resolution authorising the opening of the account with nominated signatories, which must be signed by two signatories. For public company, a director and secretary (who will serve as signatories) must sign the document while two directors are needed to sign for private company. The board’s resolution must be on the company’s letterhead, with the executives listed on the company’s seal. Additionally, passport photographs of the signatories must be included.
To open a proprietorship business account, certified true copy of application for business registration and certified true copy of certificate of registration of a business name are required; while copy of notarised partnership deed, certified true copy of certificate of registration, partnership resolution authorising the opening of account and nominating signatories to the account are required for opening a partnership business account.
For Heritage Bank, prospective applicants must have a six months running business account and the account must be verified registered Limited Liability Company. To open a business account with them, which they said is Commission of Turnover (COT) free, the following documents are required: certified true copy of application for business registration and certified true copy of certificate of registration of a business name. To stand a chance of getting a loan from the bank, an application must show a true reflection that the account is indeed a business account and is making a daily turnover. Once this is done, the applicant gets a chance of getting 25 per cent of his turnover as loan.
Zenith Bank’s reserve for investment in small scale enterprises stands at over N3.7 billion and as such, small business owners could take advantage of this to get funding for their businesses, a source in the bank said. An applicant’s loan eligibility is based on qualifying for the criteria for SMEEIS funding, according to the bank’s website, http://www.zenithbank.com/smallbus.cfm. The prospective business must be a limited liability company duly registered with the Corporate Affairs Commission (CAC) and should have an account with Zenith Bank Plc; tenor of investment is minimum of three years and maximum of five years, the Bank’s equity investment in an SME shall be N20 million (minimum) and N500 million (maximum). Another criterion is that the prospecting company must not be involved in any pending litigation case instituted against it or by itself.
Provide security
Security in this context means collateral for the loan which the applicant must bring to the bank. This collateral is part of what will be evaluated for the eligibility for a loan. Wema Bank requires that small scale business owner must have a turnover, which could be used as collateral for loan. To qualify for commercial lending, an applicant will get 75 per cent of loan granted as collateral and the collateral must yield the company at least 80 per cent of the amount got from the bank, in case the bank is forced to dispose off of the collateral.
Security in this context means collateral for the loan which the applicant must bring to the bank. This collateral is part of what will be evaluated for the eligibility for a loan. Wema Bank requires that small scale business owner must have a turnover, which could be used as collateral for loan. To qualify for commercial lending, an applicant will get 75 per cent of loan granted as collateral and the collateral must yield the company at least 80 per cent of the amount got from the bank, in case the bank is forced to dispose off of the collateral.
For Heritage Bank, once the turnover from the account gets to a certain requirement, the applicant could get 25 per cent of the total sum. But for those who are seeking a loan to funding their start-ups, but do not have access to make turnovers, the bank said there’s an arrangement for a collateral-free loan of N1million, although if some other requirements are met, an applicant could get as much as N4million without a collateral.
Aside meeting the afore-mentioned demands to ensure applicant’s eligibility to a loan, Zenith Bank has the following conditions for funding. “The bank shall have a seat on the Board of the SME, the bank will be involved in the appointment of a suitably qualified Financial Controller, the company will execute an Equity Investment Agreement and Domiciliation of Sales Proceeds Agreement prior to disbursement, the funds shall be tied to a project cause preferably acquisition of specific fixed assets and/or working capital support” and lastly “promoters of the company should not be current directors or employees of banks,” as was written on the bank’s website.
Have a business plan
Some financial institutions require that an applicant comes armed with a solid, realistic business plan and great, but honest financial documents. It is advisable that you take the time to prepare a business plan – that is something that will show you have a good understanding of your business and market, a high-level strategy, and a financial projection.
Get your personal finances in order
Minda Zetlin of Inc wrote that Sabrina Parsons, CEO of Palo Alto Software, which makes software tools to help small businesses track their finances, told her that if you want to launch, expand, or help finance your business, you need to get your personal finances in order. According to Parsons, personal background is often a problem. And why is that? Zetlin wrote that it is “because the bank is betting on you just as it would be for a personal loan, so your past credit performance will matter. If there are delinquencies or other negative information that doesn’t belong, dispute them, and try to pay off any outstanding loans, including credit cards. Or try another option: Bring in a business partner with better credit than yours.”
Try a community bank
The difference between community banks and big commercial banks is that loan officers are likely to have more decision-making power, and are less firmly bound by algorithms than they would be in a large bank, Zetlin said. To get a loan, go for a community bank that actively pursues small business customers, she added. Go to their marketing department to get information, check out their marketing materials and the financial information on its website to get a clue.
Aside meeting the afore-mentioned demands to ensure applicant’s eligibility to a loan, Zenith Bank has the following conditions for funding. “The bank shall have a seat on the Board of the SME, the bank will be involved in the appointment of a suitably qualified Financial Controller, the company will execute an Equity Investment Agreement and Domiciliation of Sales Proceeds Agreement prior to disbursement, the funds shall be tied to a project cause preferably acquisition of specific fixed assets and/or working capital support” and lastly “promoters of the company should not be current directors or employees of banks,” as was written on the bank’s website.
Have a business plan
Some financial institutions require that an applicant comes armed with a solid, realistic business plan and great, but honest financial documents. It is advisable that you take the time to prepare a business plan – that is something that will show you have a good understanding of your business and market, a high-level strategy, and a financial projection.
Get your personal finances in order
Minda Zetlin of Inc wrote that Sabrina Parsons, CEO of Palo Alto Software, which makes software tools to help small businesses track their finances, told her that if you want to launch, expand, or help finance your business, you need to get your personal finances in order. According to Parsons, personal background is often a problem. And why is that? Zetlin wrote that it is “because the bank is betting on you just as it would be for a personal loan, so your past credit performance will matter. If there are delinquencies or other negative information that doesn’t belong, dispute them, and try to pay off any outstanding loans, including credit cards. Or try another option: Bring in a business partner with better credit than yours.”
Try a community bank
The difference between community banks and big commercial banks is that loan officers are likely to have more decision-making power, and are less firmly bound by algorithms than they would be in a large bank, Zetlin said. To get a loan, go for a community bank that actively pursues small business customers, she added. Go to their marketing department to get information, check out their marketing materials and the financial information on its website to get a clue.
Whether you’re planning expansion or improvements of an existing small business, or you’re just now getting a new business off the ground, a small business loan can give you the financial support you need. Not all businesses can get a small business loan, so you need to take special care in applying for one. By ensuring that everything is as accurate as possible and by putting your business in the best possible light, you will improve your chance to get the loan.
Get some help
Meet the business loan consultant of the bank you’re applying to and bring all the requested documents and information with you to the meeting. Once there, go over the documents with the consultant to ensure that they are all in order. This is a good idea, especially if you have not applied for a business loan before.
Wait to hear from the bank
Once you have submitted the application and all supporting documents to the correct person or address; wait to hear from bank. Do not bombard them with calls or sound desperate.
Get some help
Meet the business loan consultant of the bank you’re applying to and bring all the requested documents and information with you to the meeting. Once there, go over the documents with the consultant to ensure that they are all in order. This is a good idea, especially if you have not applied for a business loan before.
Wait to hear from the bank
Once you have submitted the application and all supporting documents to the correct person or address; wait to hear from bank. Do not bombard them with calls or sound desperate.
- By Ruth Olurounbi
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