Explore the insider secrets to obtaining a loan for your small business by utilizing CBN’s expert guidelines as your go-to resource. This insightful publication covers an extensive array of topics, encompassing the types of institutions offering financing and the vital criteria for loan approval. Get ready to take your business to new horizons.
Access to Funding: The Key to Business Success
Launching a business venture or skillfully managing an established entity frequently necessitates securing loans to ensure its continuous progress. The availability of diverse financial opportunities acts as a transformative catalyst in determining the triumph and expansion of a company.
Identifying the Right Financial Institution
Entrepreneurs must grasp the unique characteristics of their business and embark on a quest to find the financial institution that perfectly matches their requirements, presenting customized loan offerings.
Guidelines by the Central Bank of Nigeria
The Central Bank of Nigeria (CBN) introduced directives in July 2020. The directives directed Participating Financial Institutions (PFIs). Their aim was to steer low-earning funds towards MSMEs. The result was an improvement in the accessibility of financial services for these businesses.
Improving MSME Productivity and Inclusion
These guidelines are aimed at supporting the creation of new businesses, promoting business growth and revitalizing struggling companies, and align with the provisions of the Banks and Other Financial Institutions Act (BOFIA (1991) and the principles of Non-Interest Financial Institutions (NIFIs). The objective is to increase the efficiency and output of MSMEs, generate employment opportunities and drive inclusive growth.
Applying for the Micro Small and Medium Enterprise Development Fund
Aspiring borrowers can approach a Participating Financial Institution (PFI) of their choice to apply for the Micro Small and Medium Enterprise Development Fund (MSMEDF).
Serving Micro-entrepreneurs and SMEs
Participating Financial Institutions serve two groups, Micro-entrepreneurs and SMEs. Micro-entrepreneurs seeking loans less than N500,000 can approach one of the following institutions: Microfinance Banks, NGO/Microfinance Institutions, Financial Cooperatives, or Finance Companies. On the other hand, SMEs seeking loans between N500,000 and N50 million can approach Deposit Money Banks, Bank of Industry (BOI), or Bank of Agriculture.
Eligible Business Types
The following types of businesses can avail financing under the MSMEDF: Agricultural value chain activities, manufacturing and cottage industries, artisans, services, trade and general commerce, renewable energy or energy-efficient products and technologies, and any other income-generating projects as prescribed by the CBN.
Essential Information for Borrowers
Prospective borrowers must provide the necessary documents, including collateral for SME loans. Participating Financial Institutions (PFIs) will evaluate loan applications, approve and forward loan requests to the CBN for fund release.
The MSMEDF will only release funds to borrowers through PFIs, and the borrower’s account will be credited within 5 working days of the release of funds by MSMEDF to the PFI.
Loans will be granted at a 9.0% interest rate per annum (all charges inclusive) regardless of the financed activity. Borrowers must repay all loans, including any accrued interest, to the PFI as and when due. The MSMEDF/CBN will recycle fully repaid loans transferred to it by the PFIs.
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