Accessing the funds that a Small Business Owner needs to start or grow a business is a challenging assignment. But the good news is that there are more options available now than in the past. A Small Business Owner looking for money to start or grow a business can now look up to a growing list of development finance institutions which disburse funds on concessionary terms for projects that meet specified criteria.
Here are three sources of affordable funds available for a Small Business Owner to start or grow or scale a business:
1. Central Bank of Nigeria MSME Fund: The Central Bank of Nigeria (CBN), in support of government’s policy to promote agricultural businesses, micro, small and medium enterprises (MSMEs) for economic development and employment generation, introduced the Agric-Business/Small and Medium Enterprises Investment Scheme (AGSMEIS).
The scheme aims to improve access to affordable and sustainable finance by Agri-businesses, Micro, Small and Medium Enterprises (MSME). The sectors currently covered by the scheme include:
- Businesses in the entire agriculture value chain, including production, inputs supply, storage, processing, logistics and marketing.
- MSMEs in the real sector, including manufacturing, mining and petrochemicals.
- MSMEs in the service sector, including Information and Communication Technology (ICT) and the creative industry.
The scheme advances funds for start-ups, business expansion or revival of ailing companies, on the following terms:
- Loan limit: N10,000,000.
- Interest rate: Five percent per annum.
- Tenor: Up to Seven years, depending on the nature of the project.
- Moratorium: Maximum of 18 months for principal and six months on interest.
Prospective beneficiaries are required to satisfy the following conditions:
- Submission of duly completed application form.
- Bank Verification Number (BVN).
- Certificate of Training from a one-week CBN-approved Entrepreneurship Development Centre (EDC) or evidence of membership of an organised private sector association.
- Letter of Introduction from a Clergy, Village Head, District Head, Traditional Ruler, Senior Civil Servant, in cases of individuals and micro enterprises.
- Evidence of registration of Business Name or Certificate of Incorporation and, where applicable, filing of annual returns with the Corporate Affairs Commission (CAC), as prescribed by the Companies and Allied Matters Act (1990).
- Tax Identification Number (TIN) and current Tax Clearance Certificate (TCC), where applicable.
2. Bank of Industry: The Bank of Industry (BOI) manages various funding initiatives, including the Cottage Agro-Processors (CAP) Fund, the Nollywood Fund and the Fashion and Beauty Fund.
The Cottage Agro-Processors Fund aims to finance not fewer than 1,000 projects, at interest rate of nine percent, management fee of one percent, tenor of five years, with six months moratorium.
Incorporated small and medium enterprises, and registered co-operative societies, engaged in production and/or processing of such agricultural products as cassava, rice, groundnut, cashew, oil palm, plantain, sorghum, yam, fisheries, livestock, cocoa, sheanut, maize, tomato, etc. can access the CAP Fund. Producers or processors of derivatives in the forms of raw materials or finished products for local industries or export can also access the Fund.
The N1 billion NollyFund targets enterprises engaged in the film production value chain from pre-production to post-production, and lends up to N50m to borrowers. The interest rate of 10 percent, payable monthly, includes processing and commitment fees of one percent each; plus quarterly monitoring fee of 0.125 percent of outstanding Principal.
Maximum tenor of the term loan is 12 months, from end of moratorium of six to nine months, after loan disbursement date. Collateral and funding requirements are:
- Assignment of copyright to Bank of Industry.
- Personal Guarantees of Producer and a reputable individual acceptable to Bank of Industry.
- Minimum Guarantee of Distributor to cover value of project, plus interest on the loan amount.
- Undertaking of Distributor to remit cinema proceeds of the film to designated bank, per agreed arrangement, with Bank of Industry as sole signatory on the account.
- Security deposit of five percent of the loan amount by the Distributor.
- Letter of Referral from a recognised organised private sector Association, Group or Guild.
- Equity contribution of 20 percent of production cost by the Producer.
The Fashion Industry Fund is designed for registered enterprises and co-operatives in the fashion and beauty value chains, namely, Adire and Aso-Oke, Design and Production of Clothing, Fashion and Beauty Training Institutes, Distribution and Retailing, and Beauty Salons. The fund, to be used for acquisition of equipment, consumables and working capital, is disbursed according to these categories and amounts: Micro enterprises and Co-operatives (N10 million), Small enterprises (N50 million) and Medium enterprises (N200 million). Interest rate is nine percent per annum, with one percent processing fee. Tenor is three to five years, with moratorium of up to 12 months from disbursement date.
For a co-operative society, the requirements are: Joint and several guarantees of members of the co-operative society; Personal guarantees of the President and Secretary of the co-operative society; Personal guarantees of the President and Secretary of the co-operative society; and two guarantors who are not members of the co-operative society and acceptable to Bank of Industry. Other conditions are 10 percent contribution of the loan amount, lien over present and future stock of trade and asset debenture on equipment finance.
The requirements for Micro and Small Enterprises are asset debenture over financed equipment, irrevocable personal guarantee of Chief Promoter (s) of the business and two guarantors who are not shareholders of the business and are acceptable to Bank of Industry.
Medium enterprises must provide legal mortgage on pledged property or bank guarantee from commercial banks acceptable to Bank of Industry and irrevocable personal guarantee of chief promoter of the business or debenture on assets of the business.
A start-up business is expected to contribute a minimum of 30 percent of the loan amount while assets of existing businesses may count as equity contribution of the borrower.
While the requirements for application vary according to the fund to be accessed, the process includes providing the following:
- Letter of application.
- Copy of certificate of incorporation or registration.
- Business Plan.
- Proof of collateral for the loan.
- Passport photograph of sponsor(s).
3. Development Bank of Nigeria: The Development Bank of Nigeria (DBN) makes wholesale lending to primary financial institutions, for medium to long-term on-lending to Micro, Small and Medium Enterprises (MSME). A DBN loan must be accessed through a Primary Financial Institution (PFI) registered to participate as an intermediary in the scheme. Not fewer than 29 financial institutions now process DBN loans.
DBN offers varying loan amounts at interest rates, based on tenure and market rates. Depending on the nature of the business and purpose of the loan, a Small Business Owner could get up to 18 months moratorium on repayment of principal for an investment project and working capital, and a repayment period of up to 10 years.
A start-up or operating MSME in any sector of the economy can submit an application for a DBN loan at a participating commercial bank, microfinance bank, or similar financial institution. The receiving institution will conduct its due diligence on the applicant’s business and proposal and, upon approval, will forward the application to DBN which, on approval, will disburse the money to the applicant through the primary financial institution.
These are some of the sources of funding for the Small Business Owner wishing to start or grow or scale a business. The type of business to be started, grown or expanded will determine the best option for the situation.