Money is a big worry when you’re starting a small business and getting a business loan is a major hurdle facing small businesses, mainly due to tight lending standards by banks which are no longer your only option.
But obtaining outside financing is often necessary to start or grow a business or cover day-to-day expenses, including payroll and inventory.
The growth of alternative lending gives established companies a wide range of business loan options. But entrepreneurs might find it hard to get a small-business startup loan. After all, who wants to lend thousands of Naira to a small business that doesn’t even have revenue yet?
Secondly, To find, apply for and getting approved for small-business loans can be difficult, the more prepared you are, the better. Here’s how to get a business loan in five simple steps:
- Pinpoint why you need the money. Ask yourself how this loan will help your business.
- Find the right loan. Choose a type of business loan based on your needs.
- Find the best lender for you. Compare options based on the cost and terms of each loan.
- See if you have what it takes to qualify. Gather information including your credit score and annual revenue.
- Get your documents ready and apply. Know what documents lenders will need from you ahead of time.
Here are few proven methods of financing a brand-new business:
Crowdfunding has become a popular way for small businesses to raise money, thanks to such sites as Gofundme and Indiegogo, which let you solicit funds through online campaigns. Instead of paying back your donors, you give them gifts, which is why this system is also called rewards crowdfunding.
New avenues also are opening up for equity crowdfunding, in which you tap a public pool of investors who agree to finance your small business in exchange for equity ownership. This became an even broader option recently with new securities regulations that allow small-business owners to reach out to mom-and-pop investors, not just accredited investors.
Friends and family
Perhaps the most common way of financing a new small business is to borrow money from friends or family. Of course, if your credit is bad — and your family and friends know it — you’ll have to persuade them that you’ll be able to pay them back.
In these situations, the potential cost of failure isn’t just financial; it’s personal.
“Business is personal, regardless of what people say. For most people, it’d be difficult to separate the two.”
Trim your list of friends and family to those who understand your plans, and do your best to make certain they’re comfortable with the risks involved.
Grants from private foundations and government agencies are another way to raise startup funds for your small business. They’re not always easy to get, but free capital might be worth the hard work for some new businesses.
For example, We have the Tony Elumelu Foundation.
Government Loans and microloans from nonprofits
Typically for government loans we have The Lagos State Employment Trust Fund (“LSETF” or “the Fund”). It was established by The Lagos State Employment Trust Fund Law 2016 to provide financial support to residents of Lagos State, for job, wealth creation and to tackle unemployment. The Fund has the mandate to help Lagos residents grow and scale their Micro Small and Medium Enterprises (“MSMEs”) or acquire skills to get better jobs.
For micro loan sources, it can be a less difficult route, especially if you have shaky finances. Many focus on minority or traditionally disadvantaged small-business owners, as well as small businesses in communities that are struggling economically.
Generally, you’ll get solid loan terms from these lenders, making it possible for you to grow your business and establish better credit. That can help you qualify for other types of financing down the road.
However, the downside of the microloan is the “micro” part: Funding may not be sufficient for all borrowers