How to get a loan for your small business according to CBN’s guidelines

Anyone starting a business or running an existing one may be required to obtain loans to keep the business operational. Access to funding is crucial to the success of a business, as it can determine whether a business can succeed or fail.

Business owners should know their business type and identify the right financial institution that can offer a loan.  

In July 2020, the Central Bank of Nigeria (CBN) set guidelines to direct low-yielding funds to MSMEs through participating financial institutions to improve their access to financial services. 

These guidelines are set for new businesses, business growth, and reviving struggling companies, and they align with the provisions of the Banks and Other Financial Institutions Act (BOFIA (1991) and the principles of Non-Interest Financial Institutions (NIFIs). 

The goal is to increase the productivity and output of these micro-enterprises, create jobs, and promote inclusive growth. 

Prospective borrowers can approach Participating Financial Institutions (PFIs) of their choice to apply for the Micro Small and Medium Enterprise Development Fund (MSMEDF). 

Participating Financial institutions

These financial institutions serve two groups: Micro entrepreneurs and SMEs-

• Micro entrepreneurs (i. e. borrowers seeking loans of less than N500,000) are to approach any of the four institutions:

1. Microfinance Banks
2. NGO/Microfinance Institutions
3. Financial Cooperatives
4. Finance Companies

• Small and Medium Enterprises (SMEs): Prospective borrowers seeking between N500,000 and N50million.are to approach any of these institutions:

1. Deposit Money Banks
2. Bank of Industry (BOI)
3. Bank of Agriculture

Types of businesses that can be financed under the Fund

• Agricultural value chain activities,
• Manufacturing & Cottage Industries,
• Artisans,
• Services,
• Trade and general commerce,
• Renewable energy or energy-efficient products and technologies, and
• Any other income-generating projects as may be prescribed by the CBN.

Important information borrowers need to know

• Prospective borrowers are to provide the required documents including collateral for SME loans;
• PFIs will appraise loan applications, approve and forward loan requests of borrowers to the CBN for the release of funds;
• MSMEDF will only release funds to borrowers through the PFIs;
• The account of benefitting borrowers shall be credited by the PFIs within 5 working days upon the release of Funds by MSMEDF to the PFI;
• Loans shall be granted at an interest rate of 9.0% per annum (all charges inclusive) irrespective of the type of eligible activity financed;
• Borrowers shall be expected to pay back all loans as and when due inclusive of any accrued interest to the PFI; and
• The MSMEDF/CBN will recycle all fully repaid loans transferred to it by the PFIs.

You can find out more on the CBN website.