Can Your Small Business Get a Bank Loan for Land? The Reality for Nigerian Entrepreneurs

Hello and welcome to the show. I am at an undisclosed location in Abuja, but there will be some interruptions in the background, so I apologise for that. Now, the goal of this podcast is business education. If this is your first time of discovering the podcast, then stay here. You're in the right place and please do me a favour, make sure you talk about the show so that your friends and family members in Nigeria and abroad can benefit from the questions that we tackle.

They can do that by subscribing on Spotify, YouTube, Apple or any player of their choice. And if you have any sales and marketing questions in particular, bring them to me. You can call, you can SMS, you can WhatsApp me on 08064662140. Today on the show, I want to briefly tackle a question from Wisdom who called in from Dawaki in Abuja. Now his inquiry was he wanted to know whether small businesses can get a bank loan so that they can buy land.

So that's the reason why he called in. So the answer to the question is yes. But I keep saying on the podcast, OK, let me back up a little bit on the podcast where people call in or they hit me up and they want to know about business finance. I usually give them 4 categories, let's say 4-4, maybe 5. Anyway, so the categories I give them is this, that if you want to finance your business, you want to do something for your business through your business,

one way of doing that is you can bootstrap. Bootstrap just means you are using your savings or you are using cash flow that comes from the business to finance your business activities. So let me repeat. Option number one is bootstrapping. How much money have you saved? How much money have you been able to gather? You will now use that to grow the business. Or how much cash flow am I getting from my business? As in I'm doing good sales, I'm making correct profit.

I'm now taking some of that profit I'm putting back into the business to be able to achieve one or two things. That is bootstrapping. That's usually what I tell people. Option number one option #2 is equity. Equity, you're going to talk to someone, you collect some money from them, but they give you that money on the understanding that look, as I'm giving you this money when our partners, you know, 505070302080 whatever,

but sure, as I give you money that's in, I look, this is business partnership here. This is business marriage. That is what equity is. They own a percentage of your business. So that's another way to get some money. Then after that is loan. Loan is this money that I'm giving you, you know, is, is borrow, you pay me back. So whether you go through a bank or whether you go through a private individual, that is what a loan is.

I collect some money and I agree that I'm going to give you back this money plus something, plus interest, plus markup, plus percentage, plus something. But should I have to collect money and you're paying back plus something that is a loan. And I think that's option #3 Abby. Yeah, I think that should be 3. Then option #4 is grant. Now grant is a dash with the money, free money, if you're able to get that on a personal level and it's all good.

But on a business level, typically you get grants from government agencies or charities, NGOs, you know, these sorts of things. However, when it is through a formalized source like a government or a charity, even though the money is free, meaning you will not pay back or meaning that they will not take a share in your business. Usually some conditions are attached to this money. So they usually are some pre qualification criteria.

So that means you have to match certain things to be eligible. So there's some businesses, and I've done podcast episodes about that in the past, where there are women based businesses in Nigeria of a certain age trying to apply for certain grants. So of course for those ones, you know, you have to be a woman, you have to be in a certain sector, you know, that kind of thing. So that kind of grant, somebody like me who is a man above a certain age in a different kind of sector would not be able to take advantage of those grants.

So you have to meet the eligibility requirements, you have to be eligible. Then after that for grants, there will be reporting requirements. So what that means is, depending on the organization, every month or every week or every year or every quarter or every six months, they will let you know what's up. You have to be reaching out to them like ORGA, Grant Maker, Madam Grant Maker, thank you very much for the money of the money you gave us.

This is how we used it. We did this, we did this, we did that because people who give grants usually want to make sure that the money that was given is used for a specific purpose. So if I go and I apply for a government grant and it is meant to be used for what's, what's that word now? Working capital? Yes, working capital. Working capital is the money that you need on a daily, on a weekly, on a monthly, on a whatever basis to finance your business.

So let's say there's a government grant and now collect like I can 15M and the point of it is working capital. The government wants to know that I'm using it for working capital. They do not want to hear that I collected 15 M and then I went back to my village and then I married 3 brand new wives. So that's the whole idea. You will have to meet some reporting requirements so that the person who is giving the grant can be able to verify that the money that they gave you,

you used it for purpose. So when people reach out to me, these are the options that we explore when it comes to financing, my own personal favorite, especially since I'm coming at this from a sales and business development background, is always try and see how much of bootstrapping we can do from the beginning. Because bootstrapping doesn't have as many obligations, as many comma as many, you know, extra this and extra that as the other sources of finance.

All the other sources of finance, you can see that they have comma, they have obligation, they have extra work, they have extra paperwork, they have extra. You understand that you have to comply with, but for bootstrapping, you don't have to comply with that. Another reason why I prefer bootstrapping is the process of bootstrapping itself often leaves you with a healthier business because you want to gather your savings or because you want to.

Now make sure that your unit economics are correct. Unit economic means whenever I sell something, one particular product, am I selling enough so that the profits that comes on top is enough for me to put something in my pocket and is enough for me to throw back into the business. When you're bootstrapping, the whole thing of unit economics becomes very, very clear. If bootstrapping is the only way that you're building your business, you will now see that or more.

This thing and I'm selling the profits on it is not enough. The markup on it is not enough. I'm currently talking to a trader right now and that is one of, excuse me, that's one of her issues. So she gets palm oil wholesale across state lines and for her, the numbers are not adding up. This is what the market normally sells for. If I stick to this, I'm going to be losing 3000 on every single consignment. Now, 3000 doesn't seem like as much, especially since, you know, she's buying big and big and big consignments.

But The thing is, losing 3000 on every single consignment still doesn't change the fact that, look, this business, we are not in the profits. We are in the minors. So when you're bootstrapping, we're paying attention to all these issues. Are my unit economics correct? Am I selling at the right price? Do I have enough to throw back into the business? When you're asking yourself these questions, usually you end up with a healthier business because you're worried about the business fundamentals.

It's like when we go to the doctor and you go and sit down there. The doctor is asking you a bunch of questions. How is your BP? Your BP is too high. Have you been eating sugar? Your sugar is too much. Have you been taking salt? Your salt is not enough. You know, they're trying to fix the fundamentals so that you will continue to survive. And bootstrapping puts you in that frame of mind where you are looking at the business fundamentals and you want to make sure that your business survives.

When we go through all these other ways of funding the business, sometimes, you know, you collect money like let's say the granting the government gives me 15 M that 15 M covers the multitude of sins. I'll be able to close my eyes to the fact that I am not running my business the right way. So I'm not saying bootstrapping is the best, but that is the reason why for most people I say, let us start from bootstrapping. Now, the reason why I've gone into all this story is just that I'm saying that if you reach out to me just like Wisdom from Dawaki in Abuja, that is going to be the first thing I want to be looking for.

Like OK, you know what? Yeah, all these options are there, but let's see how we can bootstrap this thing. But if you insist, of course, I'll give you all the information that you need to do what you think is best for your business and for your context. So he wants to know, can he raise money from the bank so that he can buy land that he will now use for his business? It's all right, it's not a problem, you can do that.

However, once you enter bank route or all these formalized routes, just know that there's plenty of paperwork and plenty of diligence that lies ahead. People want to see that you have planned something. So you will need to have a proper business plan that is laid out, complete with the projections and what you plan to do with this money. So you need to have something written. You need to have a formal business plan. You also need to be on top of your numbers.

This is how much we're making today. This is how much we're making this week. Because of that, we project that we will need this amount for six months, for three months, for one year, for whatever. And based on how much we're selling today, we project that we will make this in six months, this in 18 months, this in 36 months. So you need to have that paperwork down. There's also another individual that I'm talking with.

He runs a marketing agency. They want to go down this route. And for them, they run their business of the banking app. And I told him, look, guy, this will not fly. You actually need to have an accountant coming. You need to have a, a, what are they called, a book? What are they called accountants or book bookkeeper? Either an accountant or a bookkeeper. Somebody used to come in and separate everything and create proper statements for the person who runs the marketing company.

They're interested in raising equity. So what that means is they want to go and talk to somebody who will drop money and the person will become part owner of the business. The person who is going to want to become part owner of the business, except if he is your uncle that has known you from small or your auntie who used to wipe your bum bum when you were a baby. They want to see something on paper to be sure that you know what you're talking about and that you're thinking, correct.

The business plan, where, where is it? The sales and marketing plan, where where is it? The projections, where is it? The money that I'm giving you? Excuse me, excuse me, I have a bit of a cold. So the money that I'm giving you, what are you going to use this thing for? When you use it like this, everything works. How much are we going to get back when the thing gets back? How soon you start paying me? You know all these sorts of things.

So once you start entering all these formal whatever, all these paper trail now becomes a big issue. So for Wisdom in Abuja, in Darwaki, you want to raise money from the bank to buy land for your business, Sure, no problem. But you will have to provide some personal and financial information, you guys to get your ID, whether it's driver's license or whatever. But I make sure it's updated. I understand it can be a hassle because to be honest, I just picked up my own license three days ago and between you and me,

it, it took me two years to collect this license. I'm not lying, two years in Abuja. Luckily, the license I paid for was five years. So even though two years don't lapse, at least I'll be able to use this license validly for the remaining three years. But two whole years to collect my license mom see it took out like nine months to collect the license. Then my former business partner who used to handle video for me the last time we spoke was already like that kind of like one year, three months, four months.

The guy never collect license. So yes, more these things can be a hassle, but what can we do? So go and get your license. You need to identify yourself. Then you also provide the bank with your BVN. The BVN, is that what's it called? Is it bank verification number or something like that? That's the universal identification number for people in Nigeria anyway that is attached to anybody who has a bank account in Nigeria.

The idea is people, the, the government regulators and the banks want to be able to track you across different, across different banks. You know, because it's possible that I, even though I have an account with Access Bank, I can go open an account with Zeni's bank and maybe I'll go and we'll do them and then I swap them and collect maybe like 20 M and then I disappear. But with the BVN, you'll be able to track people across all platforms across all different banks.

So you have to provide them with your BVN, your bank verification number. I think that's, that's what it means. If I'm wrong, please send me a message, let me know. Then you will also have to provide them with your NIN number. That's your which is NIN again, national identity number. Yes, probably national identity number. Then you'll also have to provide address details. So for now, that's usually utility bills. So that's water, Napa, you know,

whatever and you know where you live. So that's the facet of paper trail. Now after that, in fact, this is where the hard work begins. You will not have to provide your income and employment details. If you're somebody that has work, if you're somebody that has 95 S, whether you work with Zenith Bank or Ministry of Finance or you know whatever, you will not have to provide bank statement with everything. This is how much money I make.

This is my employer. This is where we work. You know all that detail, you give it to them because when you're collecting loan, the bank wants to know like is this guy stable? Is this somebody I can chase? How much money is flowing through this guy? Can this guy or this girl? Does you look as if this is the kind of person that will pay me because no bank wants to drop, you know, 40M50M or whatever and then tomorrow they can't find you or next month they don't know how they're going to get paid.

So you have to provide that paperwork. Now, since wisdom from Dark, he's a business owner and is self-employed just like I am. We will not have to provide income and business details plus audited financial statements. This is me, this is my business. This is what we do. This is how much we've made. This is how much we did last year. This is, you know, you have to provide all those details. So can you see how the paperwork is beginning to stack and beginning to stack and beginning to stack Now, if you have all this information, it's not a bad thing.

I'm not trying to discourage you. I'm just trying to say that look, if you must go this for more routes, just know what lies ahead. And by the way, all of these things that we're doing, it's not guaranteed. It's not as if we provide all these things and then we even get it. OK, then tax clearance. So that means as a business person, you should have been paying your tax. And you listening to this podcast, you don't have to answer, but in your heart of hearts, be honest with yourself.

When was the last time you paid tax? Be honest, you know, you know, anyway, so these are some of the hurdles that we have to meet if we want to collect money from the bank because we want to use it to buy land. Then also had to point out to wisdom that even this thing of collecting money from the bank is not as if he's 100% like that or you guys drop something, there's something that they call equity contribution. So that means you will drop something on the value of the land.

So if the land is 100 M, they will tell you to drop anything between 20% to 50%. So the bank, if the land cause 100 M, they might ask you to drop 50 M. They will drop the remaining 50. You can see you still have to raise money or 100 M 20% to be so it'll be what is that 20 M? I'll be OK. I'm not good at the math. So let's just say that 20% of 1,000,000 will be sorry, did I say 1,000,000? OK, let me just pretend it's 101

million now to make it easier. OK, let me say 100 million. So 20% of 100 million will be 20 million. So you still have to raise like that kind 20 M and drop first before they will now drop money for the rest. So there will still be an equity contribution. It's not said we give you that money 100% then. So let me check my notes. There was also going to be land specific information. You need to have an offer letter from the vendor before they will give you that money.

Then you also need to have your title documents correct. C of O certificate, certificate of occupancy title documents are the documents that you use to show ownership. Real ownership of the land is really, really important because nobody wants to give you money today to go and buy land tomorrow and then next tomorrow after you buy the land next week, some other person will say who are you? You can't come and buy this land.

This land does not belong to you. Before you know it, you're in court matter. The problem we're entering court matter for you means that the person who gave you the money, the person automatically now becomes part of your basic and nobody wants to, nobody wants that all that kind of hassle. So the bank is going to want land specific information. Let's see title documents. That's why I said last. So CFO certificate of occupancy,

do you have it? That's the strongest valley to show who owns the land. Then deed of assignment. The deed of assignment is a document that shows that one person wants to transfer ownership to another person. Then there's also the survey plan. Survey plan is just the what do you call these people? These people that come with all those funny cameras, the estate survey or the land survey or all those people that do come put all those machines, measure this place, measure that place, you know, just to show that, OK,

this land is indeed the land we're talking about. Then governor's consent is also required as OK, well, you need that if you're going to get the COO now what else? OK, evaluation report, evaluation report has to be done so you can get the market value of the land. And then OK, legal search. Of course the bank want to do legal search to authenticate title. Authenticate just means the thing I'm looking at now, is it the real thing?

I'll be this one fake. So that's just the process of authenticating. They just want to make sure that the title is correct. Now remember, title just means ownership. When we're talking about land, we want to make sure that the ownership is correct because we want to be sure that the person who say he is selling the land, let he be sure that he's the owner of the land. Because those of us who grew up in Lagos, you know how this thing happens.

You go, you buy a piece of land, you start celebrating that yes, I have bought land. Then the day you show up on the land and you want to start putting a block to put you on the land, some people just show we say what's going on to say, look, we are on Manila, that we are the, we are the children of the land, We are the owners of the land. Whoever you dealt with, that's between you and them. You still have to settle us.

If you don't settle us, you are not doing anything on this land. So these are things that need to be sorted out. I don't know if we have these sorts of issues in Abuja, but in Lagos it's a thing. And then also in Benwood state is also a thing because you can deal with one person, but before you now start building other people show and say, look, you dealt with that person, that person did not discuss your family head.

Since they did not discuss your family head, you have bought nothing. You still have to deal with us. We had the family at large. So all these issues, you know, they, they now start to come up. So that's what this whole thing about authenticating title is about. Then of course, there's also. Site inspection, you know, go and visit the places is the right plot of land, you know, blah, blah, blah, blah blah. So these are the sorts of issues.

So I am not trying to scare you, dear listener. I just want you to have a realistic understanding of the process that lies before you when you say you want to use formalized institutions to raise money. Now, if you're a sophisticated business person, you've been in business for a while, you've been paying all your taxes, you have an accountant, you have a bookkeeper, you have your audited financial statements, everything, your business.

Now, if you are at that level, then all all well and good, you know continue, but a huge percentage of people who listen to this podcast are not at that stage yet. So realistically speaking, that is the reason why when a lot of you reach out, the first thing I will say is it was up. How much do you have in savings or was the business look like? How much profit are you guys making on the weekly or the monthly, you know, or on a quarterly like was you're looking at is there any way that we can bootstrap this thing?

We can't cash flow this thing small first before we start looking at other things. But if you want to just know that there is a paper trail, there are other plenty paper, paper work and everything that you have to meet before you get this finance. But the answer to the question basically is can you raise money even as a small business person, as a one man show, as an SME, as a one woman gang? Can you raise money to buy land through the bank?

Oh yes you can. If you meet the requirements and you make a compelling case, yeah, then sure, you absolutely can. So that's the answer to the question. And that is all for today. Now remember, if you have any sales and marketing questions in particular, call, SMS or WhatsApp me on 0806466 2140. Thank you very much for your time and attention. I will catch you at the next episode.