Startup loans generally don’t require business credit or high revenue—lenders know they’re lending money to support a new idea. However, your personal credit and experience in the industry can affect your eligibility and loan terms. You can also use different types of financing to support your business. Here are nine common options.
What credit score is needed for a startup business loan?
The credit score you need for a startup business loan can depend on the type of loan and the lender, but having a personal credit score that’s at least in the high 600s (the maximum is 850) can be helpful. However, some types of financing, such as crowdfunding, don’t require good credit.How to get a startup business loan
- Create a business plan.
- Evaluate your personal credit.
- Compare different types of financing.
- Apply for financing.
Create a business plan. Lenders want to see that you’ve thought through the challenges and opportunities that will come with your new business. Include any relevant information about your experience running a business or working in the industry.
Evaluate your personal credit. Your personal credit may be a factor in whether you qualify for financing and the rates and terms you receive. Many free apps and financial accounts let you check your credit scores for free. See where you stand and what you can do to improve your credit score.
Compare different types of financing. Consider how much money you need, when you need it, and how much you can afford to repay as you review the options and home in on your top choices.
Apply for financing. Review the eligibility and application requirements and apply with several lenders or organizations. Compare the offers you receive to determine which will be the best fit for your business idea.
Online business loans are often term loans, which means you receive the entire loan amount when you accept the loan offer and then make regular payments over a predefined term until the loan is repaid.
Online lenders may also have easier qualifications and a faster application process than traditional lenders, and they might use modern techniques (such as connecting to and analyzing your bank account) to determine who qualifies.
One of the strongest barrier startups face is in providing collateral for a loan. This is because startups, most times, do not have existing assets, which disqualifies them from the majority of commercial loans.
No Collateral Required
The Smart Business Loan is structured to provide access to loans of up to N20m without collateral.
Flexible Repayment
The repayment plan can be structured to suit your business and flexible for up to 2 years.
Convenience
Easy access to the loan through our digital application forms and automated repayment process.
Top-up is available
If you need additional financing during your loan tenor, we can offer you a top up after 12 months if regular repayments are made.
The Nigeria bureau of statistics has stated that these MSMEs and SMEs contribute to over 50% of the country’s GDP employing about 80% of the country’s workforce. Despite this, MSMEs and SMEs still struggle to access adequate credit, with only about 5% of these businesses having access to funding and credit.
These statistics are probably not so far-fetched as you may know a few yourself that haven’t been able to get credit. For this reason, many business owners have had to squeeze themselves dry to get started. They used their savings, borrowed money from family and friends, and even sold properties just to get some capital. Truth be told, finding credit can seem like looking for a needle in a haystack, but it doesn’t have to be.
In this post, we’ll teach you how to get a small business loan in Nigeria, so your small business can expand and truly reach its potential. If you are new to the business world, we will also talk about ways to obtain a loan for startup business in Nigeria.
Ways to procure loans for small businesses in NigeriaAccess to small business loans, especially business loans without collateral is not as common as most would think, but there are still a few safe and secure ways to get loans. We’ve outlined the main ones below.
Even though loan apps give some of the best small business loans, you still need to do your due diligence. Do not download just any app on the app store instead, check out this list we’ve compiled on the top loan apps in Nigeria and pick a loan app partner based on your needs.
The SBA 504 loan program could be a good option if you’re buying real estate or equipment, but only 10% of those loans went to startups.
The Community Advantage loan program is for businesses in underserved markets, and 45% of these loans went to startups in 2021.
The SBA microloan program offers up to $50,000 to start or expand a business, although the SBA doesn’t say what share of those went to startups.
The SBA also has a lender matching tool you can use to find participating lenders and compare loan offers based on your specific needs.
They were established to give grants, and low-interest loans to MSMEs and SMEs in Nigeria. Here are their pros and cons.
Pros of Government loan schemes
They offer grants or low-interest loans
They focus on MSMEs and SMEs
They sometimes offer collateral-free loans for business
Cons of Government loan schemes
Competition is high, so they are difficult to get
With equity you’re raising money in exchange for a portion of your business, while with a loan or bond you’re taking on debt that must be repaid with interest. Donor crowdfunding, like GoFundMe campaigns, isn’t often used by startups because you have little or nothing to offer in return. But you could consider a rewards-based campaign and offer donors one of your business’s products or services in exchange for their contributions.
This is especially good for small businesses that need money to sort out business emergencies or for businesses just starting out with no social proof and no collateral.
Here is a list of the top loan apps that give loans without collateral:
Evaluate your personal credit. Your personal credit may be a factor in whether you qualify for financing and the rates and terms you receive. Many free apps and financial accounts let you check your credit scores for free. See where you stand and what you can do to improve your credit score.
Compare different types of financing. Consider how much money you need, when you need it, and how much you can afford to repay as you review the options and home in on your top choices.
Apply for financing. Review the eligibility and application requirements and apply with several lenders or organizations. Compare the offers you receive to determine which will be the best fit for your business idea.
Online business loans are often term loans, which means you receive the entire loan amount when you accept the loan offer and then make regular payments over a predefined term until the loan is repaid.
Online lenders may also have easier qualifications and a faster application process than traditional lenders, and they might use modern techniques (such as connecting to and analyzing your bank account) to determine who qualifies.
One of the strongest barrier startups face is in providing collateral for a loan. This is because startups, most times, do not have existing assets, which disqualifies them from the majority of commercial loans.
No Collateral Required
The Smart Business Loan is structured to provide access to loans of up to N20m without collateral.
Flexible Repayment
The repayment plan can be structured to suit your business and flexible for up to 2 years.
Convenience
Easy access to the loan through our digital application forms and automated repayment process.
Top-up is available
If you need additional financing during your loan tenor, we can offer you a top up after 12 months if regular repayments are made.
The Nigeria bureau of statistics has stated that these MSMEs and SMEs contribute to over 50% of the country’s GDP employing about 80% of the country’s workforce. Despite this, MSMEs and SMEs still struggle to access adequate credit, with only about 5% of these businesses having access to funding and credit.
These statistics are probably not so far-fetched as you may know a few yourself that haven’t been able to get credit. For this reason, many business owners have had to squeeze themselves dry to get started. They used their savings, borrowed money from family and friends, and even sold properties just to get some capital. Truth be told, finding credit can seem like looking for a needle in a haystack, but it doesn’t have to be.
In this post, we’ll teach you how to get a small business loan in Nigeria, so your small business can expand and truly reach its potential. If you are new to the business world, we will also talk about ways to obtain a loan for startup business in Nigeria.
Ways to procure loans for small businesses in NigeriaAccess to small business loans, especially business loans without collateral is not as common as most would think, but there are still a few safe and secure ways to get loans. We’ve outlined the main ones below.
Loan Apps
This is the fastest and most common way of getting a loan for start-up businesses in Nigeria. Loan apps usually take about 5 – 10 minutes to decide on your loan package and if you should be given a loan. Loan amounts range from ₦250,000- ₦10,000,000. Majority of the time, these apps don’t require collateral & offer collateral free loans for business. They only use your credit score to determine if you are likely to pay back.Pros of loan apps
- They are fast.
- They give substantial amounts of money
- No collateral needed
- No need to go to a branch.
- You only have to download an app.
Cons of loan apps
- They often have only one physical branch
- You may not get the amount you want.
- The app decides the amount it can trust you with.
Even though loan apps give some of the best small business loans, you still need to do your due diligence. Do not download just any app on the app store instead, check out this list we’ve compiled on the top loan apps in Nigeria and pick a loan app partner based on your needs.
SBA loans
The US Small Business Administration (SBA) doesn’t offer most SBA loans directly, but it partially guarantees loans offered through participating lenders. You can apply for different types of SBA loans depending on your business and how you plan to use the funds. Although the application and approval process can be lengthy, the guarantee can also make it easier to get a substantial loan on favorable terms, even if you don’t have great credit.The SBA 7(a) loan program is one of the most popular programs and offers up to $5 million in funding. In 2021, about 17% of SBA 7(a) loans went to startups.The SBA 504 loan program could be a good option if you’re buying real estate or equipment, but only 10% of those loans went to startups.
The Community Advantage loan program is for businesses in underserved markets, and 45% of these loans went to startups in 2021.
The SBA microloan program offers up to $50,000 to start or expand a business, although the SBA doesn’t say what share of those went to startups.
The SBA also has a lender matching tool you can use to find participating lenders and compare loan offers based on your specific needs.
Banks
Before loan apps, banks were the number one place small business owners who wanted to grow their businesses go to get loans. Although they are trustworthy, loans from banks usually come with high-interest rates and a request for collateral. This often discourages startups from getting loans. However, start-ups can request business loans from banks, if the owners have a good track record and can provide sufficient collateral.Pros of banks
- Trustworthy
- You may get more loans as you build credit with them.
Cons of banks
- High-interest rates
- Lots of documentation and need for collateral
- Long processing time
Government loan schemes
The Nigerian government has established a few bodies to help MSMEs and SMEs. Examples of these bodies are the Bank of Industry (BOI), Bank of Agriculture (BOA), Development Bank of Nigeria (DBN), Nigerian Export-Import Bank (NEXIM), and Small and Medium Enterprises Development Agency of Nigeria (SMEDAN).They were established to give grants, and low-interest loans to MSMEs and SMEs in Nigeria. Here are their pros and cons.
Pros of Government loan schemes
They offer grants or low-interest loans
They focus on MSMEs and SMEs
They sometimes offer collateral-free loans for business
Cons of Government loan schemes
Competition is high, so they are difficult to get
Crowdfunding
Online crowdfunding platforms can help you organize a campaign and raise money from strangers and people you know. There are four common types of crowdfunding: debt, equity, donation, and rewards.With equity you’re raising money in exchange for a portion of your business, while with a loan or bond you’re taking on debt that must be repaid with interest. Donor crowdfunding, like GoFundMe campaigns, isn’t often used by startups because you have little or nothing to offer in return. But you could consider a rewards-based campaign and offer donors one of your business’s products or services in exchange for their contributions.
Online apps for small business loans
Loan apps in Nigeria are known for their speed when it comes to loan approval and disbursal. They don’t require you to go to a place or present numerous documents. All you need to do is download the app, sign up and request a loan.This is especially good for small businesses that need money to sort out business emergencies or for businesses just starting out with no social proof and no collateral.
Here is a list of the top loan apps that give loans without collateral:
FairMoney MFB: FairMoney’s main appeal is that it is a full-fledged digital bank that gives loans of up to ₦3,000,000. This means you can sign up to get a loan on the FairMoney app in under 5 minutes and increase your chances of getting a higher amount by banking with FairMoney and enjoying other benefits.
Here is a detailed review of FairMoney. Check out more details about FairMoney loans here.
Branch: Branch prides itself on offering quick collateral-free loans. They have over 10 million downloads and their loans require no documentation.
Kuda: They offer loans called “overdrafts”. They can only be given to people who have been using Kuda for a while. The overdrafts typically accumulate a 0.3% interest daily.
RenMoney: They offer loans to both individuals and start-up businesses in Nigeria. Their loan offer is currently maxed out at ₦6,000,000Carbon: Carbon typically helps customers buy commodities and allows payback in instalments at a later date. The repayment period is usually 3-6 months.
These apps have made it possible for the average credit-worthy Nigerian to start and grow business/businesses in Nigeria.
These apps have made it possible for the average credit-worthy Nigerian to start and grow business/businesses in Nigeria.
