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In this Article We Will Review to you How to get Bank Loans and finance your Business.
Preparing a good feasbility report is one of the most important steps you need your banker to finance your proposed business. The same a true If you are planning to expand your existing business , presenting good feasbility report to your banker will make a good impression and Can facilitate your getting loan.
GENERAL REQUlREMENTS FOR A BANk LOAN:
Generally, If you need a loan from your bank to help finance an existing or new business. it most likely your bank will require the following information
1.A clear statement of the amount of the loan required
2 A clear statement of the purpose of the loan
3 The period or term of the loan
4 Your feasbillty report (if is a new enterprise or expansion of an existing one), plus an authentic financial report of the performance of your business, if is an already existing one.
5. Your management background and competence. The bank is very much interested in learning about your management background, because without competent management background the business will run into trouble and the repayment of the loan becomes difficult.
6.Your repayment arrangement. The bank will be keenly interested in knowing how you plan to repay the loan. Hence, they will like to evaluate your cash flow forecast.
7.Any security you can pledge. Banks in general, and in Nigeria in particular, want all sorts of security. You are advised to find out from your account officer what kind of security will be required before filing your proposal.
Banks generally prefer a security that can be quickly turned into cash. Examples of such securities are Government Bonds, Share Certificates and insurance policies. Other kinds of securities that can be pledged to a bank are equipment, real estate like building, and any other property of value.
The examples given above do not exhaust the list of securities that can be offered to your bank to enable you obtain a loan for business. Likewise, the list does not exhaust all options open to a borrower in obtaining a loan. You may still be able to obtain a loan even without security, if you can get a guarantor acceptable to the bank. Members of your family, friends and relations can also be of assistance in raising Loans for you.
You can also raise finance through the popular esusu or through thrift and co-operative societies.
It is not likely, however, that any financial institution will be willing to provide more than two-thirds of the cost of your proposed project. In other words, banks and other financiers watch the debt-equity ratio in appropriate cases in deciding whether to approve a loan or deny it.
Why banks insist on high credit standards:
Banks usually require high credit standards in order to be able to get back their money. They do not actually own the monies they lend to borrowers. They give from the monies deposited with them by other customers, meaning that they are entrusted with public money. A bank or any other financial institution acting in this capacity of trust must, therefore, jealously guard the money so entrusted to it, if it must
maintain its reputation.
Banks in Nigeria are under the supervision of the Central Bank Nigeria (CBN). Thus, a banker’s decision on a loan application will be
influenced by the following factors:
The Government regulates the activities of banks in this country through the Banking Act of 1969 and the Banks and Other Financial Institutions Decree of 1991. Apart from regulating, the Government
implements the economic and industrial policies of the country Besides, banks in Nigeria must comply with the relevant provisions of the Companies & Allied Matters Decree, 1990 and operate within its
framework. In the final analysis, Government is the regulator of the
economic and financial system of the country.
Agriculture receives the highest priority, followed by the manufacturing and construction industries. In giving loan, therefore, banks have to reflect Government policy as contained in the Centra Bank guidelines.
This is so because the CBN acts as Government agent in the
implementation of Government directives and regulation of the banks.
Each bank has it’s guidelines on lending by which it guides its lending Department. Such as guidelines must, of Course, be consistent with the Central Bank guidelines. Each bank evaluates the loan application
taking into consideration the standing of the customer and his past performance, the purpose and amount of the loan, the period and it’s source of repayment.
The purpose of the loan must be acceptable and the amount sought must be reasonable. No bank will be willing to finance the whole cost of a project. The borrower must have a stake in the business by also
Risking his own money in the project. The period by which the money will
he repaid must be quite reasonable and the source of repayment must he certain. This is where your feasibility report and the past financial performance of your business become particularly useful.
A business should repay its debts out of it profits.
Sometimes a customer may be denied a loan or an advance in his own interest. It is common for a customer to be overly optimistic about the profitability of his project by under-estimating the possible difficulties he/She might encounter. As a result of these considerations, the banker tries to make sure the loan request is viable and not one that will land the customer in disaster and make repayment difficult or impossible.
Bearing all the preceding considerations in mind the bank subjects your feasibility report to the following appraisals:
1.Market Analysis or Appraisal
Here he wants to make sure that proper market research was done and that there is a market for your product or service.
2. Technical Appraisal
Here the banker wants to be sure that the production technology or
process is feasible and that adequate technical arrangements have been made to ensure a successful implementation of the project.
3. Managerial Appraisal
Here the bank tries to satisfy himself that the management team is
In evaluating the commercial arrangement in your proposal, the bank evaluates your marketing plan to be sure that you have made pro-arrangement for the marketing of the product or service, and that
adequate arrangement has been made for a steady supply of raw Materials Where Relevant.
Under this heading the bank evaluates your financial projections or forecasts, not only to ascertain their accuracy but also to determine the profitability of the project. He also wants to determine whether adequate arrangements have been made for financing the project and that there is
a proper balance between debt (borrowed capital) and equity (owner’s capital).
The bank would also like to determine what contribution your project will be making to the economy in terms of saving foreign exchange and employment generation.
The legal department of the bank would like to make sure that your
business is in accordance with the Nigerian law, particularly if it is a joint-venture.
You can see from the above the importance of your doing a goodfeasibility study before submitting your loan application to your banker. With a good feasibility report, your chances of getting a loan are high your project is feasible.
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