When applying for a microfinance bank loan in Nigeria, there are several stages that you should take into consideration before taking a business loan.
So what are the considerations? This describes the things you should consider before applying, the paperwork needed, interest rates, and so on.
Before applying for a Microfinance Bank Loan, it is important to understand the types of collateral and guarantors that may be required.
The main aim of Microfinance institutions is to provide financial assistance to individuals and Small and Medium-Sized Enterprises (SMEs).
Since conventional banks require such a lengthy application process and exorbitant interest rates, microfinance institutions have sprouted up to assist individuals (salary earners), petty traders, and small business owners in obtaining loans of a more manageable size.
The main motive of microfinance loans in Nigeria is to help; Businesses, asset acquisition, agriculture, and educational objectives amongst other reasons. As a result, Microfinance loans are available to individuals and enterprises that meet the bank’s conditions.
Microfinance loans include interest rates ranging from 5% to 6%, depending on the amount borrowed.
Depending on the loan, the term can range from a few months to a few years.
- 1-3 months; 4-6 months; 4-6 months; 4-12 months
Only enterprises with credit facilities of up to 5 million Naira can take advantage of the maximum maturity date of 18 months.
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What is A Microfinance Bank
In Nigeria, a Microfinance Bank (MFB) is a company that has been granted a license by the Central Bank of Nigeria (CBN) to engage in the business of providing financial services to microfinance customers. Such services include; savings and deposits, loan financing, domestic fund transfers, and non-financial services.
Factors to Consider Before Applying for A Microfinance Bank Loan in Nigeria
Before applying for a company loan, keep the following things in mind:
In order to demonstrate your creditworthiness, commercial banks require your bank account to be active for at least a period of 6 to 12 months. As for microfinance banks, it is not so.
To maintain responsibility, it’s a good idea to keep personal and corporate finances separate.
Small and medium-sized businesses must conduct extensive research before applying for a loan. In addition, the company must have been in operation for at least a year and be based in the same place for at least six months before it may be registered.
Required Documentation for a Microfinance Bank Loan application
A Microfinance Bank Loan requires the following documents:
- You need to get a Loan application form – fill it out and submit
- Microfinance bank needs you to have an Excellent Business Proposal for small-medium scale businesses (SMEs)
- Letter of Application (for individuals) Required
- You need to have a valid means of identification e.g. National I.D card; International Passport; Driver’s License, etc.
- Microfinance banks also need a current utility bill
- You need four (4) recent passport photographs
- The last thing needed here is Proof of your business location and ownership.
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You are not required to submit this in order to be considered for a Micro-finance loan. For large commercial loans, agricultural loans, and asset procurement loans, the value of the collateral must be equal to or more than the loan amount in order to qualify.
Small-time merchants and individuals prefer guarantors over collateral in their transactions. Microfinance institutions require a minimum of two guarantors in order to lend money.
To be eligible to join, the guarantors must be in good financial standing and at least 25 years of age. It is the obligation of the Guarantors to see that the loan is returned on time and in full.
If the customer fails to pay the loan, the Guarantor will be responsible for reimbursing the loan amount. Customers and guarantors are required to sign the loan agreement on the same day that it is signed by the lender.
What are the documents required by the guarantor? The documents that will be required by the Guarantor include the following;
- A current Passport photos
- Identification Card e.g. Voters card or Driver’s License etc
Lastly, it’s crucial to be aware that a Microfinance Bank Loan may be repaid ahead of the scheduled time frame.
It is as simple as that. That has been it on the Complete Guidelines on how to apply for a micro-finance loan in Nigeria. If you find this article useful, please share it with friends, it will go a long way to help them.