11 Things You Should Know About Assessing Bank of Industry (BOI) Loan Support in Nigeria
1. The Bank of Industry (BOI) targets the industrial sector of the economy
The bank of industry is set up to encourage industrial production and value creation by manufacturing and processing activities of businesses. The objective is to provide the industrial sector with finance as well as business support services. Target sub-sectors include Agricultural and Agro-allied businesses, Solid Minerals, Oil and Gas, Manufacturing and any business which operates in any of these value chains and uses equipment to carry out processes that add value.
2. The Bank of Industry finances plant and equipment
The bank of industry does not finance raw materials, nor working capital, nor lands and building. The bank is principally set up to finance industrial equipment. So if you are a primary agricultural producer (for instance) what the BOI will finance is the equipment that you need to produce your goods. That could be in your case tractors, combine harvesters, dryers, freezers, or any other such machinery.
3. The Bank of Industry disburses funds to the vendors and suppliers of the equipment your business needs
The bank does not disburse the loan to the borrower but rather to the vendor of the equipment that the loan is intended to finance. The bank will carry out all necessary due diligence to ensure that the quotation from the vendor has been vetted for genuineness. The bank will want to ensure that the price quoted is reasonable for the type of equipment being quoted for. While the bank will not necessarily finance the lowest quotation, the bank will want to confirm that the purchase is indeed value for money. Where possible and applicable the bank will encourage borrowers to first investigate sourcing their equipment from local manufacturers that can be identified through the Federal Institute of Industrial Research Oshodi (FIIRO). This ensures that spare parts and support maintenance are locally available at prices that are immune from exchange rate risks.
4. The Bank of industry requires collateral but is very flexible about its collateral requirements.
Many prospective borrowers are put off by the requirement for collateral to back their borrowing. Obtaining a Certificate of occupancy (C of O) for landed property in many parts of Nigeria is a herculean task and this has prevented many a business from accessing finance. This is one of the usual concerns that most borrowers have. The good thing is that the BOI accepts collateral other than landed property. They also know about the difficulty in obtaining C of O’s and actively embark on advocacy to the states affected.
Other forms of security they accept include:
• All assets debenture on existing and future plant and equipment and raw materials subject to a cover of 2.5 times the loan amount.
• Bank Guarantee
• Performance Bonds from any one of ten accredited Insurance Company’s
• Advance Payment Guarantees
And in all cases they would also require the personal guarantee of the promoter(s), in addition to any other guarantee above. So do not let the question of collateral prevent you from starting the process of accessing Bank of Industry finance. If you already have an existing loan from another lender and have provided any of the acceptable collateral as above. The Bank of Industry is willing to share the collateral pari-pasu with the pre-existing lenders provided that collateral is adequate to cover the total requirement of both loans. The bank of Industry is also willing to accept third party collateral subject to there being a tripartite agreement in place between the bank, the borrower and the owner of the assets. Of course such third arty collateral will be thoroughly vetted to ensure genuineness and validity of title.
5. The Bank of Industry can help you source your working capital requirements through its partners
The Bank of Industry does not provide working capital finance but has a network of participating banks with whom it has negotiated SME friendly financing terms. On application to the Bank of Industry for equipment finance any interested prospective borrower can also apply to the Bank of Industry to be connected to one of the participating banks. The two loans (equipment finance and working capital finance) can run concurrently although the terms will of course differ.
6. The Bank of Industry can lend to start up businesses at its discretion
Whereas the Bank of industry in its general risk acceptance criteria requires a prospective borrower to have been in business for at least three years with a good track record of sales and profit margin, it can also lend to start-ups on a case by case basis. A start up wanting to apply for a bank of Industry loan would need to provide proof of cognate experience in its business area. They would need to have a highly experienced and qualified management and operational team with a verifiable pedigree and sound management structure.
7. Generic Risk Acceptance Requirements of the Bank of Industry
The generic requirements include the following:
a) A Nigerian business.
b) Can provide at least 20% equity for the project. Equity can be in the form of existing plant and equipment.
c) Sufficient industry knowledge, skills and experience related to your business field.
d) Prudent and financially disciplined, able to separate personal funds from business funds.
e) Passionate, energetic and resilient in the face of challenges and unafraid of competition.
f) Evidence of having attended an entrepreneurial development programme at an accredited EDC.
g) An effective working succession plan.
h) Your business size should define you as an SME.
i) Your company should have been in operation for a minimum of three years with a good track record of sales and profit margin.
j) Clear, specific, and verifiable loan purpose.
k) Viable and realistic growth plan.
l) Able t o provide collateral.
m) No history of loan default.
n) Good book keeping and accounting.
o) Skilled and dedicated workforce.
p) Easy access to raw materials.
q) Strong demand for products from a loyal customer base.
r) All necessary licenses and permits to operate your line of business.
s) Belong to the agricultural, manufacturing value chain or related services.
t) Safe and secure location of project site and collateral assets.
u) Reliable tested technology with long term maintenance agreements.
v) Membership of organised private sector associations such as Nigerian Association of Small and Medium Enterprises (NASME), Manufacturers Association of Nigeria (MAN), Nigerian Association of Small Scale Industries (NASSI) etc.
w) Good corporate citizen up to date with personal and Corporate Income Taxes.
x) Business generates sufficient cash-flow to meet loan obligations.
y) Business line is legal and permissible.
z) Business ownership and management should be willing to make full a nd accurate disclosures to BOI.
8. The Bank of Industry does not re-finance plant and equipment
Some prospective borrowers may have financed plant and equipment from other sources using more expensive funds or in some cases short term funds and may be looking for re-financing. The Bank of Industry does not re-finance loans even if they are for plant and equipment.
9. It takes between two and four weeks to receive loan approval
From submission of a complete loan application package to approval can take as little as two weeks, and not longer than four weeks. The bulk of the time in applying for a loan is actually spent in writing the business plan and meeting the requirements.
10. The bank of industry is desirous of providing you with business support
The Bank of Industry is not just concerned with providing finance to you. They are very much interested in your success as a business. Their concern starts from wanting you to have the very best chances of having your loan request granted, and extends to ensuring that you generate enough sales and profits to meet your business objectives as well as repay your loan. In order to assist all prospective loan applicants the Bank of Industry has appointed Business Development Support Providers to assist you every step of the way. If you would want to find out more about the support that Business Development Support Providers can offer then head over here and schedule a free complimentary session.
11. Finally, ensure you follow Bank of Industry social media platforms and website in other to get more updates from time to time.