Are you looking for information on how to access loans for your SMEs (small and medium enterprise)? If yes, this article will be very helpful.
It is not an easy task to raise capital for any business especially if you are just starting out. We all know the difficulty associated with obtaining loans from any of the commercial banks in Nigeria, due to the requirements attached with securing a loan facility.
As a result of the difficulties experienced by individuals and especially the small and medium enterprise in securing a loan, the bank of industry has entered into partnership with some of the commercial banks in Nigeria to make it easy to get access to startup loans.
A LITTLE HISTORY ON THE BANK OF INDUSTRY
The bank of industry(BOI) is Nigeria’s oldest, largest and most successful development financial institution.
The bank of industry was established and mandated to provide financial assistance to the establishment of large, medium and small enterprises as well as the expansion, diversification and modernization of existing enterprises and rehabilitation of dilapidated ones.
Who can access BOI loans?
- Small, medium and large enterprises, excluding cottage industries.
- New or existing companies, seeking expansion and diversification.
- Credit worthy promoters who will be required to prove the commitment to the project by contributing at least 25% of the project cost excluding land.
- Borrowers whose management capabilities, financial situation( including availability of collateral and guaranteed character and reputation are incontrovertible.
- Clients with demonstrable ability to meet loan requirements.
- Borrowers with no record of unpaid loan to other development finance institutions and other banks.
The Bank of Industries (BOI) emphasizes on a prudent project selection and management and as a result focuses on quality projects with potential developmental impact.
The bank of industry gives preference to industries that meet the following requirements
- Capacity to substantially add to industrial output.
- Projects that use largely domestic materials.
- Industry in which Nigeria’s comparative advantages could be converted to competitive ones.
- Ability to promote the expansion of exports through the production of high quality products, that are attractive to domestic and export markets.
- Niche projects that produce for worldwide consumption.
- Project that create both forward and backward linkages with the rest of the domestic or regional economy.
- Ventures that promote inter-state or regional integration.
- Small and medium enterprises ( SMEs) that have linkage with large firms, belong to clusters and operate under franchise.
- Enterprises with high employment generation capacity.
- The project must be technically feasible, commercially viable and economically desirable.
- Projects that are environmentally friendly.
- Enterprises that have good management setup and proper accounting procedures.
- Enterprises promoted by women entrepreneurs.
The priority industry sector that the bank of industry focuses on include
- Agro and Agro-allied industries.
- Polymer based industries.
- Solid minerals.
- Information Communication Technology (ICT) services.
Requirements necessary to meet to access Bank of Industry Loan
- Formal letter of application.
- Photocopy of Certificate of Registration or incorporation.
- Photocopies of the certified true copy of Forms Co2 and Co7.
- A photocopy of the certified true copy of Memorandum and Articles of Association of the company.
- Feasibility study report (4 copies).
- Quotations for items of equipment (at least 2 or 3 quotations from different sources), where applicable.
- Three (3) years most recent audited accounts of the company (for existing companies).
- Organizational structure and management of the company.
- Declaration of total outstanding liabilities of the company.
- Statement of Account for the past six (6) months from the companies bankers
- Acceptable securities shall include a charge/security interest over all of applicants assets, copyrights, rights etc. And on the equipment/assets financed and/or the underlisted securities among others.
- registered intellectual Property/proprietary assets. Assignments of all agreements and intellectual proprietary rights (IPRs) to BOI. The bank will have right in the negotiation of valuation of IPRs.
- Joint and several guarantees or the directors of Applicant Company with Notarized statement of net worth.
- Provision of Guarantee cover issued by any financial institution acceptable to the bank.
- Insurance cover from any acceptable/reputable insurance company for short term lending of not more than one (1) year.
- Marketable financial instruments
- Assignment of receivables/lien on proceeds/deposits and the right of set-off.
- First hypothecation charge on all the tangible movable assets under the project.
- Ordinary producers would be required to bring in at least 25 per cent of the project cost as promoters’ contribution.
- Producers would be required to tie up the advances from the Distributors to cover 35 per cent to 40 per cent of the budget.
- A Trust and Retention Account (TRA) may be maintained for all capital as well as revenue inflows and outflows. Thus receivables on sale of all IPRs would be credited to TRA. The modalities of TRA would be worked out on case-by-case basis to the satisfaction of the Bank, which will have first charge on the TRA.
- Any other security that may be acceptable to the bank.
- Three (3) years most recent Tax Clearance Certificate for the Company and two (2) Directors.
- Eight recent Passport photographs of each of the two Directors and the Company Secretary.
- Completed copy of Bank of Industry Questionnaire.
Having met the requirements for accessing the loan. You will have to write a detailed business plan.
What is expected in the business plan
- Information on the company’s activities since incorporation.
- Biographies of shareholders of the company and their percentage share holding.
- Projects concept, the need for the project and detail project description
- Details of the pre and post production cost as well as the proposed financing plan with realistic assessment and evidence of availability of funds from each source.
- Details of existing assets and the value as well as cost incurred on the proposed project till date.
- Detailed technical information covering technology, production process etc.
- Information on Technical Partners, if any.
- Details of utility requirements and availability of essential services such as water, power, transport around the project site.
- Comprehensive list of manpower requirements broken down into categories and salaries.
- Marketing of products and services including distribution arrangement.
- List, qualification and position and annual salary of existing management and staff (for expansion projects only).
- For on-going projects, give the existing, Expansion/Diversification and Consolidated projections covering Profit and Loss Accounts, Cash Flow Analysis and Balance Sheets for the period of five (5) years. Also provide the detailed information/data and assumptions used in the above projections.
Lastly before you proceed to secure the loan here are 8 things you need to know
The bank of industry targets businesses that engage in manufacturing and processing activities. Target sub-sectors include Agro-processing, Solid Minerals, Information Technology, Oil and Gas and Creative industry.
Entities that BOI Finances
Bank of industry only finances enterprises or companies and not an individual person or group of persons. The company / enterprise must be duly registered and you will be required to provide the registration number for a Limited Liability Company or business name for an enterprise before you can proceed with your application.
Items that BOI can finance
The bank is principally set up to finance industrial equipment used in manufacturing. The Bank does not finance land and building which are expected to be financed from equity. You can also access your working capital requirements from any of the ten (10) SME friendly banks that Bank of Industry partners with at Monetary Policy Rate plus 6 percent.
Mode of disbursement
The bank does not disburse the loan to the borrower in cash but to the vendors and suppliers of the equipment that the loan application is for.
Amount that can be financed by BOI
BOI’s loan support to the SME starts from N5 million. However, loan below N5 million are provided on a matching fund platform which is operated in collaboration with various state governments and on the Bottom of the Pyramid (BOP) scheme which is operated through Microfinance Banks.
As part of the fiduciary responsibility in managing funds under its care, Bank of industry requires that you pledge some assets to secure your loan. However, the Bank also accepts other forms of security subject to adequate coverage of the loan being provided to you. Types of security the Bank accepts include:
- Legal mortgage on a landed property. The property must be duly registered with a Certificate of Occupancy
- Debenture on assets of the company
- Bank Guarantee
- External Guarantors with Notarized statement of Net worth for loans below N10 million.
- Please note that the Bank is willing to share assets previously pledged to other lenders provided the Bank’s loan is adequately covered in the arrangement. Also note that the Bank is willing to accept third party collateral.
While the Bank under its general risk acceptance criteria requires a prospective borrower to have at least three years acceptable performance track record, it can also lend to start-ups at its discretion and on a case-by-case basis. A startup would need to provide proof of cognate experience in its business area and would need to have a highly qualified management and operational team with sound management structure.
- You need to support your application with some documents.