Financing an SME or a start-up in Nigeria
In Nigeria, entrepreneurs fund their businesses through commercial and microfinance banks, the Bank of Industry, lenders refinanced by the Development Bank of Nigeria or regional funds such as LSETF in Lagos, provided they are registered with the CAC.
CAC registration: the gateway to credit
No bank lends to an unregistered business for long. Registration with the Corporate Affairs Commission, as a business name or a limited liability company, provides the certificate and the RC or BN number required in every credit file.
The Bank of Industry, the oldest development lender
The Bank of Industry finances agro-processing, light industry, renewable energy and solid minerals, with a presence in most states. Its loans are aimed at large companies as well as at well-organised small, medium and micro enterprises.
The Development Bank of Nigeria and its partner lenders
The DBN does not lend directly to entrepreneurs. It provides long-term refinancing to partner banks and microfinance banks, which can then offer small businesses longer loans than their ordinary funding would allow them to grant.
LSETF for businesses in Lagos
The Lagos State Employment Trust Fund offers loans to micro, small and medium enterprises based in Lagos State, on terms more flexible than the market. Applications open in successive calls and require prior training before any funds are released.
The movable collateral registry
Since the 2017 secured transactions law, the CBN has run a national registry that lets businesses pledge machines, stock or receivables. A workshop in Aba without titled land can therefore offer its equipment as security for a loan.
Commercial banks and what they expect
Banks mainly finance firms with several years of trading, audited accounts and regular flows through their accounts. Rates aligned with a high policy rate often discourage long-term investment by small and medium businesses.
First stock financed by a microfinance bank
For an initial need of a few hundred thousand naira, such as starting stock or a freezer, microfinance banks are easier to reach than commercial banks and ask for less collateral. How they work is set out on the microcredit in Nigeria page.
Leasing a vehicle or machine
Leasing avoids tying up cash to acquire a lorry, a generator or a production line, while import prices follow the dollar. The Nigerian legal framework is explained on the car leasing in Nigeria page, including the 2015 law.
Grants and competitions for young founders
The Tony Elumelu Foundation and various federal or state programmes offer training and non-repayable seed capital. These grants are highly sought after and must never depend on paying an application fee, whatever an intermediary may claim.
Tax matters and the tax identification number
Public lenders ask for a tax identification number and up-to-date returns filed with the federal or state tax authority. Tax clearance certificates also prove to banks that the business operates regularly and meets its obligations.
Islamic finance for northern SMEs
Jaiz Bank and TAJBank finance purchases of stock or equipment through murabaha, or through ijara for machinery. In Kano, the commercial heart of the North, these solutions attract textile and agricultural produce traders who prefer to avoid interest.
Business finance in Senegal
In Senegal, SMEs rely on bodies such as DER/FJ or FONGIP within the BCEAO zone. The comparison with the Nigerian model can be found on the business loans in Senegal page, which describes the regional schemes.
Building a business loan application in Nigeria
- Register the business with the CAC and obtain a tax identification number.
- Open a business account and run all of the company's takings through it.
- Prepare a business plan costed in naira, with cash flow forecasts over the loan term.
- Choose the right lender: microfinance bank, commercial bank, BOI or LSETF.
- Record movable collateral in the national registry run by the CBN if the lender asks.
- Track how the funds are used and supply the periodic reports the lender requires.
The cost of a business loan in Nigeria
| Item | What drives the cost | Observation |
|---|---|---|
| Interest rate | Lender, sector, refinanced funding | Often lower at the BOI or through the DBN |
| Processing fees | Size and complexity of the project | Vary by institution |
| Collateral | Type of security, land or equipment | Recorded in the movable collateral registry |
| Asset insurance | Value of the equipment financed | Usually required |
| Advisory fees | Business plan, audit of accounts | Budget for them on large files |
Documents for a Nigerian business loan
- CAC registration certificate and articles
- Tax identification number and certificates
- Business plan and financial forecasts
- Twelve months of company bank statements
- Directors' BVNs and ID documents
- Pro forma invoices for the equipment
- Audited financial statements for companies
Why SME applications get rejected in Nigeria
- Running takings through personal accounts, which makes the business invisible to the credit analyst.
- Presenting a business plan with no realistic assumption about the exchange rate or the cost of fuel and electricity.
- Paying an intermediary who claims to guarantee a BOI loan or a federal grant.
- Diverting an equipment loan to day-to-day spending, which undermines repayment and future financing.
Lenders to contact
- Accion Microfinance Bank: Nigerian microfinance bank lending to micro-entrepreneurs and small businesses, also offering personal loan products such as BrightA MyOwn Loan Plus.
- Jaiz Bank: Nigerian Islamic bank offering Sharia-compliant home finance as well as personal financing for household appliances and equipment.
- Federal Mortgage Bank of Nigeria (FMBN): Federal mortgage bank of Nigeria granting National Housing Fund home loans to contributors for buying or building a house.
- Jaiz Bank: Nigeria's first non-interest bank, publicly listed, offering Shariah-compliant accounts and financing to individuals and businesses.
Nigerian entrepreneurs' questions about credit
Does the Bank of Industry finance small businesses?
Yes, the BOI has products for micro, small and medium enterprises, sometimes distributed with partners. Applications must be solid, with CAC registration, a business plan and proof of activity, and the review process can take a long time.
Can you borrow without titled land in Nigeria?
Yes. Thanks to the national movable collateral registry, equipment, vehicles, stock or receivables can serve as security. Microfinance banks also accept personal guarantors for smaller amounts, which helps young businesses get started.
Is LSETF only for Lagos residents?
The fund targets businesses operating in Lagos State and residents of that state. Other states have set up comparable funds for jobs and entrepreneurship, which you can look up through their ministry of commerce.
How can you spot a fake grant offer?
A genuine public or foundation grant never charges fees to release the funds. Announcements circulated on WhatsApp with a payment link, a private phone number or a very short deadline are clear warning signs.