How to get cheap funds for SMEs

How to get cheap funds for SMEs

In the development of any economy, Small and Medium Enterprises (SMEs) are critical. They possess great potentials for employment generation, improvement of local technology, output diversification, development of indigenous entrepreneurship and forward integration with large-scale industries.

There has been gross under performance of the SMEs sub-sector in Nigeria and this has undermined its contribution to economic growth and development. According to FSS 2020 SME Sector Report, 2007, the key issues affecting the SMEs in the country can be grouped into four namely: unfriendly business environment, poor funding, low managerial skills and lack of access to modern technology.

Poor funding, however, occupies a very central position among the factors. Commercial banks, globally, which remain the biggest source of funds to SMEs, have in most cases shied away because of the perceived risks and uncertainties. In Nigeria, the fragile economic environment and absence of requisite infrastructure have rendered SME practice costly and inefficient, thereby worsening their credit competitiveness.

One of the most pivotal keys to building a sustainable enterprise anywhere in the world, remains availability of credit. Businesses are funded by two major means – equity and loans. While it is most desirable to start and expand a business through equity, sometimes it makes more financial sense to take a loan to support the cash flow of the business, expand into a new market or buy an important asset.

The stringent conditions attached to bank loans, sometimes makes it difficult to access funding from banks. The Nigerian government over the past decade has become more interested in boosting activities in the SME space by filling the financing gap left by the private financial institutions.

Today there are intervention funds from the governmentthat people can access to fund businesses. The most attractive feature the facilities share in common is the interest rates; which are much cheaper than those of private lending institutions.

Bank of Industry (BOI) Intervention funds

To aid the development of the country’s industrial sector as well as intervene financially in developing sustainable enterprises, the federal government of Nigeria created the Bank of Industry (BOI). The institution has provided intervention funds to various sectors of the Nigerian economy, including agriculture, power, mining and many others.

The bank  also administers various funds on behalf of state governments, CBN, other government agencies and a number of private institutions. There are over 20 funds that SMEs can access. The interest rates range from 5 to 14 percent per annum.

The bank has a loan application portal on its website –

Applicants also may have to consult one of their enterprise development partners to have a good chance of getting their loan requests approved.

Agric Small Medium Enterprise Scheme (AGSMEIS)

The CBN in collaboration with the bankers’ committee created the Agric Small Medium Enterprise Scheme (AGSMEIS) to support the federal government’s “effort and policy measures for the promotion of agricultural businesses and SMEs as a vehicle for sustainable economic development and employment generation.” It is a financing programme.

The AGSMEIS requires all banks to set aside five percent of their profit after tax (PAT) annually to fund small businesses. The scheme can fund an SME up to the tone of two billion naira for a maximum tenor of 10 years. One can apply for this facility through any commercial bank in Nigeria if the financing requirement is more than 10 million. Under the same scheme, CBN also licenced NIRSAL Microfinance Bank (NMFB) to disburse maximum of 10 million to SMEs. Application for this loan can be made through NMFB’s website-

Development Bank of Nigeria (DBN) Loans

In collaboration with some global development partners, including the World Bank and African Development Bank, the government of Nigeria created the Development Bank of Nigeria (DBN) to address financing challenges faced by SMEs in Nigeria. The bank provides wholesale term funding and risk-sharing facilities to pre-selected financial institutions, which include commercial banks and micro-finance banks.

The bank funds both startups and existing businesses for up to 10 years. Interested SMEs can only apply through participating financial institutions (PFIs), which will appraise the business and upon favourable assessment will approach DBN for disbursement.

Names of approved PFIs can be found on the agency’s website-

Micro, Small and Medium Enterprises Development Fund (MSMEDF)

MSMEDF was launched in 2013, an initiative of CBN to bridge the existing financial gap in the SME sub-sector of the economy. SMEs can access loans from N500, 000 to N50 million to fund their businesses. Sixty percent of the N220 billion is targeted at funding women-owned businesses while 10 percent is to fund startups. Applicants are to approach PFIs- commercial banks, microfinance banks, finance houses and financial cooperatives- to apply for the fund.

CBN Creative Industry Fund

The CBN, in collaboration with the Bankers’ Committee, introduced the Creative Industry Financing Initiative (CIFI) as part of efforts to boost job creation in the country. It is done with a view to improving access to long term financing by entrepreneurs and investors in fashion, information technology and entertainment industries.

The funding amount ranges from N3 million to N500 million, depending on the capacity of the applicant. Applicants can access the fund through any commercial bank whose duty will be to accept and process all documentation required for disbursement. They can talk to their banks about the loan. A number of banks have the information on their websites and you can also apply by filling the forms online.

There are many other funds that can be accessed to fund businesses. However, there are challenges those seeking these facilities will face in trying to access them but such people have to be diligent, present proper financial records, and be patient.

Some of these funds take months to access and various financial documents to present. You can also talk to designated enterprise development experts.


Source: Business Hallmark

Author: abokimallamfx