According to the country manager at the World Bank Group – IFC, Eme Essien Lore, “Access to finance is a big challenge to Small and Medium Enterprises(SMEs) in the developing markets, especially, in the Nigerian market due to the country’s low credit GDP. Closing the finance gap for SMEs is a policy priority for public and private sector players especially in developing economies around the world.”
The Nigerian economy is made up of mostly informal businesses, which represent over 80 per cent of the entire labour force, thus, it is of utmost importance that SMEs are financed to ensure the security of this labour force.
Virtually, all commercial banks in the country have specialised credit facilities for entrepreneurs to access, but most are unable to access it, partly because they cannot meet the criteria.
Therefore, for SMEs to have their loan applications scale through bank approval process, certain information is needed.
Criteria For Bank Loans
Before giving you a loan, banks need to ascertain that you are creditworthy, and your business has progressed to a certain level.
Prior to applying for a loan, your small-scale business must conform with the goals and interest of the financial institution you want to apply to.
Other things banks put into consideration before disbursing a loan are: a well-written business plan, financial record, collateral and a guarantor.
Essien Lore advised SMEs looking for access to finance from banks, to recognise what will be required of them and have those things readily available. Also, as regards access to finance, business owners, she said, should understand that the financial institutions are not just interested in collaterals.
“It is important for things like the business vision, good governance and so on, to be in place as this will make their businesses more attractive for funding. SMEs must dig a bit more to find out specific financial institutions collaborating with the IFC and other development partners. This is because they can access loans at lower rates from such financial institutions,” she pointed out.
In order to improve the chances of MSMEs at securing bank loans, the PwC report suggested the following steps should be followed:
Most funding institutions request the cashflow history of businesses being considered for funding.
Use Of Technology For Documentation
Companies may use tools such as excel sheets, Power BI, cash flow budget worksheet, and other technologies to make cash flow projections easier and faster.
Financial Statements And Projections For The Business
Financial statements are major requirements when looking to secure a loan.
Collateral To Secure A Bank Loan
It is important to have a secure, valuable ( as valuable as loan requested) property for use as collateral, with the value of the property remaining valid through the loan period.