How to get a Loan for Your Small Business According to CBN’s Guidelines

Anybody interested in starting a business or who already has an existing business might be required to get a loan to keep their business completely functional. Accessing funding is very essential to the success of a business, as it can determine whether the business will succeed or fail.

Business owners should be aware of the kind of business they are running and identify the financial institution that can offer them that loan. As of July 2020, the Central Bank of Nigeria (CBN) set out some guidelines that would direct low-yielding funds to MSMEs through participating in financial institutions to improve their access to financial services.

How to Get a Loan for Your Small Business According to CBN’s Guidelines

These guidelines have been set out for new businesses, business growth, and reviving struggling companies, and they align with the provisions of the Banks and Other Financial Institutions Act and the principles of non-interest financial institutions (NIFIs).

The aim here is to work on the productivity and the output of these micro-enterprises, create jobs, and promote inclusive growth. People who would be borrowing can approach participating Financial Institutions (PFIs) of their choice in other to apply for the Micro Small and Medium Enterprise Development Fund (MSMEDF).

Participating Financial Institutions

These Financial institutions serve as two groups: Micro-entrepreneurs and SMEs.

Micro-Entrepreneurs:

These are borrowers looking to loan less than 500,000. They are expected to approach any of the four institutions:

Microfinance Banks
NGO/Microfinance Institutions
Financial Cooperatives
Finance Companies

Small and Medium Enterprises (SMEs):

These are prospective borrowers interested in borrowing between N500,000 and N50 million. They are to approach any of the following institutions below:

Deposit Money Banks
Bank of Industry (BOI)
Bank of Agriculture

Businesses That You Can Finance under the Fund

Agricultural value chain activities,
Manufacturing & Cottage Industries,
Artisans,
Services,
Trade and general commerce,
Renewable energy or energy-efficient products and technologies, and
Any other income-generating projects as may be prescribed by the CBN.

Borrowers Need to Know

People interested in borrowing are expected to provide the required documents that include collateral for SME loans.
PFIs would appraise loan applications, approve and then forward loan requests of borrowers to the CBN for the release of funds;
The MSMEDF would only be releasing funds to borrowers through the PFIs;
The account of benefitting borrowers shall be credited by the PFIs within 5 working days upon the release of Funds by MSMEDF to the PFI;
Loans shall be offered at an interest rate of around 9.0% per annum irrespective of the type of eligible activity financed;
Borrowers would be expected to pay back all the loans as and when due inclusive of any accrued interest to the PFI; and
The MSMEDF/CBN would recycle all fully repaid loans transferred to it by the PFIs.

More details are available on the CBN website