The structure of bank funding in Nigeria has been one of the biggest challenges facing the SMEs in securing loans from commercial banks for business start-ups and expansion. For an entrepreneur to access loan from any of the banks, he or she must provide collateral security; the interest rate is above single digit and the repayment period mainly within one year. This structure is definitely not favouring business development in Nigeria.
A Typical Scenario
An entrepreneur wants to expand his or her business in Nigeria and he or she needs funding, let say N10 million. He or she approaches one of the commercial banks, and the bank asked for a landed property worth over N15 million as collateral, the cost of loan at 22 per cent per annum and a repayment within one year. He or she agrees to borrow from the bank because there is no other option of getting funds for the business expansion plan.
At the end of the 12 months, he or she would not be able to pay back the loan with the interest. The bank will threaten and later sell off the landed property used as collateral and that entrepreneur will be worse off and it would’ve been better if he or she didn’t go for the loan in the first place. This is the plight of most entrepreneurs in Nigeria in accessing funding for their businesses. To access funds in Nigeria is difficult, its cost is very difficult and all the terms and conditions are nothing to write home about.
The Bank of Industry and other Agencies that responsible for assisting SMEs to make progress in Nigeria should find a way to ensure entrepreneurs have access to funds for business start-ups and expansion, ensure that the interest rate is below 1 digit as well as extend the repayment period.
My advice for entrepreneurs is to help themselves in any way they can. They can join cooperatives for the purpose savings and loans; that can be a good way to start. They can also take advantage of other credit lines. Starting small and ensuring sustaining growth can also save entrepreneurs’ from the headaches of trying to secure loans.