Microloans Meaning And Everything You Should Know In Nigeria

Microloans Meaning And Everything You Should Know In Nigeria

  • Microloans examples
  • Microlending meaning
  • What are the advantages of microlending
  • Micro lending business
  • Microloans in developing countries
  • Microloans meaning and everything you should know pdf
  • Microloans meaning and everything you should know in Nigeria

Here, we are going to elaborate more on these main points.

What Is A Microloan?

According to Wikipedia: Microloans “microlending” can also be called small business loans given to people with (often without collateral) to start small businesses. It is a financial service between individuals and small businesses who lack access to conventional banking and related services.

They are usually small in amount and are designed to be easily accessible to business owners who don’t have access to funds. Most times, these business owners do not have access to loans from traditional financial institutions due to low credit scores.

Today, microloans are very popular, owing to the emergence of P2P lending platforms, local microlenders, and dedicated microfinance institutions (MFIs).

Microloans can be used for just about any purpose as approved by the lending institution. However, they are mostly used by businesses for acquiring assets like machines, inventory, equipment, and working capital in their early stages.

Microloans are usually low-interest, short-term loans provided by certain organizations to help small businesses. Therefore, they have certain restrictions and limitations that come with them.

Here are the list of people who can apply for Retailers, Self – employed individuals, Traders, Sole proprietorships,
Startups, Manufacturers, Women entrepreneurs, Consultants, Unemployed individuals, Minimum wage workers, Minorities, etc.

Also, see: Top (5) List Of Payment Service Banks In Nigeria

What Are The Advantages Of Microlending?

  • Here are the benefits of all microlending users: It enables them to secure financing whereas the borrower may not qualify for traditional loans.
  • It required to provide little to no collateral for the loan.
  • To secure financing quickly assuming you meet the necessary requirements.

How To Register For microlending Business In Nigeria

You can register for a microlending business in Nigeria when you have provided the following requirements:

  • Company name reservation.
  • CAAC 1.1 pre-registration form.
  • Payment of filing and stamp duty fees.
  • Uploading of requested documents, which includes CAC1
  • Proficiency certificate.
  • Stamp duty certificate.
  • Evidence of CAC payment.

How To use Microloan For Business?

Before an individual can use a microloan for business, it depends on the kind of business and what the loan was obtained for. Basically, it can be used across several areas ranging from setting up basic operational requirements to expanding operations. Usually, they are used for the following:

  • Working capital
  • Inventory
  • Startup costs
  • Furniture or fixtures
  • Supplies
  • Equipment or machinery

Why Is It That Businesses Need A Microloan?

There are several reasons why a business could turn to microloans,

1. Not enough collateral:
Most commercial banks require collateral in the form of an asset or property before taking a risk on your business. Should you fail to make payments, the bank can easily sell the asset to recuperate their money. However, most small businesses do not have the asset required for collateral, therefore, they would not get a loan.

2. Low cash flow
There are times when cash flow hits low points in a business. At this moment, you can easily turn to microloans for bailout.

3. Credit score or history

Having a good credit score and history is one of the top considerations to qualify for a commercial loan. Therefore, having a poor credit score means you wouldn’t get it most likely, and for businesses just starting out, there is no way to muster enough to match the bank’s requirements.

4. Small loan amounts

Many small businesses generally aren’t looking for massive loans, but rather small amounts for very specific needs. However, on the flip side, commercial banks are designed to offer huge sums, therefore, providing loans only favourable to huge corporations. Therefore, there is a good chance that the bank rejects your loan application in favour of prioritizing large businesses.

5. The risk is greater for banks
Banks are always anti-risk and avoid it in any way they can. Basically, they are especially more conscious when dealing with small businesses due to the high risk involved. Small businesses are more likely to not grow or be able to repay loans taken.

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