Many small business owners have lost confidence in their ability to secure loans from commercial banks and other lending institutions due to denials they might have faced in the past.
However, the major concerns of banks are the ability of borrowers to repay loans, earning a reasonable interest on the loan and the protection of funds depositors have entrusted in their care.
As such, there are strict criteria for accessing credit in order to minimise the risk of losing their funds to business owners who are not credible.
For business owners to be eligible for loans, there are preliminary preparations they have to make.
Have a good credit history
In order to increase access to loans, business owners have been advised to have a good credit report. This will boost their access to finance for growth and expansion of their businesses.
A credit history, according to investopedia, is a record of a consumer’s ability to repay debts and demonstrate responsibility in repaying debts.
It says a consumer’s credit history consists of information such as: number and types of credit accounts, how long each account has been opened, amounts owed, amount of available credit used, whether bills are paid on time, and the number of recent credit inquiries.
Experts advise entrepreneurs to review their credit report before applying for a loan because lenders use the credit history to help them decide whether they are creditworthy.
For people who have not obtained a loan before, the Managing Director, CRC Credit Bureau, Mr. Tunde Popoola, encourages them to obtain a loan, and then pay back promptly to establish a good credit history.
However, he says such loans may not just be from the banking system because those who have enjoyed facilities in other places and have deferred payment, even though not in a bank, can have their information submitted to a credit bureau to build a credit history.
Possess acceptable collateral
Research has shown that microenterprises and SMEs have little or no property but they do have a wide range of productive assets that can easily be harnessed to serve as collateral for obtaining loan.
For business owners who don’t have landed properties that can serve as collateral, a representative of the Monitoring and Evaluation of the Department, National Collateral Registry, Dr. Olasupo Musa, says they have the opportunity of securing loans with moveable assets with the establishment of a collateral registry.
According to him, a collateral registry is a databank where moveable assets are registered for the purpose of being used as collateral to obtain facilities from financial institutions.
Invest your money first
A business consultant, Mr. Olufemi Onasanya, says one of the ways business owners can improve their chances of getting a loan is to invest some of their own money in the business.
He says lenders are more attracted to entrepreneurs who have at least 25 per cent equity stake in the businesses they finance.
Have a solid operational structure
For entrepreneurs who are looking to expand their businesses, experts say a good operational structure will give clarity to employees, enable departments to work efficiently and boost productivity.
And as part of a strong business structure, Onasanya says having a good business plan will convince the lending institution of high chances of the borrower repaying the loan within the stipulated time frame.
To ensure that you are considered for a loan, he says the business plan should show financial forecasts, your marketing and sales strategy, information about your management team and staff, and other operational plans.