How to Access Low-interest Loans for MSMEs

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How to access low-interest loans for MSMEs

Are you a budding entrepreneur or an established businessman seeking cheaper funds to fortify and expand your enterprise? Do you play in the micro, small and medium-Sized enterprises (MSMEs) space?How to access low-interest loans for MSMEs

If your answers to these posers are in the affirmative, then this piece is for you.

Gone are the days when you had to travel to the moon to fetch cheap loans to manure your business with. Again, the era of providing ridiculous collateral to banks to secure small loans with staggering interest rates is gone.

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Today, there are several initiatives and establishments created to provide cheap loans with long tenor and easy-to-provide collateral.

Unlike typical bank loans that offer up to 25 per cent interest rate, the banks operating various intervention programmes offer customers between 5 and 9 per cent interest rate, making them very attractive to loan seekers.

A good number of these intervention programmes have been designed by the Central Bank of Nigeria (CBN).

For young entrepreneurs who obtained higher education, there is the Tertiary Institutions Empowerment Scheme (TIES).

The term loan component of the scheme provides direct credit opportunities to graduates of Nigerian polytechnics and universities of not more than seven years post-graduation. An applicant, if successful, shall be eligible for a maximum of N5 million for an individual, sole-proprietorship or small company; and a maximum of N25 million for a partnership or company. The tenor for the facility is a maximum of five years, with a one-year moratorium, and at an interest of 5 per cent per annum, which shall revert to 9 per cent after the moratorium is over. The pilot phase of the scheme is presently being implemented through the Bank of Industry (BOI) with the development of an application portal and processing of submitted applications.

Anyone interested can visit any commercial bank for details.

Another institution created to assist MSMEs is the Development Bank of Nigeria (DBN).

The bank is a development finance organization established by the Federal Government to assist MSMEs in Nigeria with financing, partial credit guarantees, and technical assistance.

Golden rule

The first thing to note is that the bank does not give the loan to the borrower in cash or directly. Rather, the facility is routed through Nigerian intermediate banks. agro-processing, solid minerals, information technology, and creative industry are some of the sub-sectors that are being targeted.

This is because these areas are not only robust revenue generators but also heavy employers of labour. This is good for a developing nation battling unemployment and its attendant challenges.

Qualifying for a loan

The first question an intending loan seeker must answer is: “is my business or idea(s) bankable?”

This question is vital because, while the loan is open to all MSMEs involved in productive enterprises, whether new or established, they must, however, tick the boxes of due diligence. According to an analysis done by Nairametrics, there must be sufficient proof that the business would succeed and repay the loan as and when due. Again, the loan-seeker must be clients of the qualified financial institutions.

By its design, DBN gives money and risk-sharing guarantees to Participating Financial Institutions (PFIs), who will ultimately lend to end beneficiaries after carrying out credit worthiness tests.

PFIs, which include commercial banks, microfinance banks, development finance institutions and other financial institutions can access DBN loans.

The DBN loan payback length is flexible (up to 10 years with an 18-month moratorium period), and the interest rates are market-competitive and financially sustainable.

How to get loan through your bank

This is no rocket science. Just visit your bank and indicate you want to apply for a DBN loan. It is advised the loan-seeker does this himself or herself. Do not use an intermediary to avoid falling victim to numerous financial vampires and fraudsters loitering within cyberspace.

Before then, make sure your accounting records are tidy, if you’re an existing business.

So, your bank appraises the business to determine its health status and loan purpose. If your business survives the due diligence assessment, the bank then applies to DBN for funding.

If DBN approves the loan, it will disburse to the bank for on-lending to end borrowers.

Documents required

I: Official government identification (international passport, driver’s license and the likes)

ii: Evidence of company incorporation (CAC Certificate)

iii: Debenture on assets of the company

ib: Bank guarantee

Depending on the nature of your business and loan purpose, you may have up to 18 months’ moratorium on principal repayment for working capital and investment projects, and up to 10 years to repay the loan.

DBN loans offer flexible interest rates that are based on tenure and referenced to market rates.

DBN loan is specifically targeted at small businesses to ensure that such businesses have increased access to financing. In addition, DBN loans have a longer tenure than other commercial loans, which are usually short-term.

The loan seeker may note that DBN or its representative will conduct an annual due diligence process to confirm that the PFI is not in breach of the minimum eligibility requirements and may declare all advances to the PFI immediately payable if the PFI is in breach of one or more of the requirements or fails to remedy the breach of a requirement within any grace period allowed by DBN at DBN’s absolute discretion.

Which PFIs are eligible for DBN loan?

To be eligible to receive financing from DBN, the PFI should have met the minimum eligibility requirements set out below on the Cut-Off Date. The PFI shall maintain the minimum eligibility requirements throughout the Financing Period.

To be eligible for DBN financing, the PFI must have:

A duly issued and valid license from CBN to conduct business like a bank or finance company.

Two years of profitable lending operations in the three most recent financial years, with effective risk management procedures, controls, and acceptable levels of loan portfolio quality and performance.