Loans are available in various forms to suit various needs. Some are simple to repay and can be settled within a few months, while others linger for years due to their substantial amounts. Long-term debts are loans with a protracted repayment period. This is due to the fact that we primarily use them to finance large products and investments. In Nigeria, numerous institutions offer long-term loans, and they are all covered in this article.

What are long term loans?

Many companies encounter frequent capital projects that require a huge sum of upfront capital. This undertaking ranges from the acquisition of machinery to the arrangement of financing with prospective homebuyers. Since these individuals primarily intend to repay over time (via salaries), the company must rely on long-term bank loans to fund the project. This vividly illustrates the never-ending cycle of long-term loans in Nigeria.

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The loan is repaid in installments in accordance with the agreement and the borrower's or business's cash flow. It may be monthly, quarterly, semiannually, or annually. Long-term loans in Nigeria typically range from one to two years and beyond. These loans include equipment lease financing, operational vehicle financing, project financing, commercial mortgage financing, personal loans, and asset financing, among others.

Most institutions that offer long-term loans fund a portion of the total amount, leaving you responsible for the remainder. It is predominantly in a 70/30 ratio.

How to get long term loans in Nigeria 

Obtaining long-term loans in Nigeria is simpler than it appears. Especially if you satisfy the requirements for eligibility. The majority of commercial banks and development banks, such as the bank of industry and the bank of Africa, offer long-term loans. There are also various government initiatives involving CBN and commercial institutions that offer loans to businesses. Simply visit any physical location or the institutions' official websites to get started.

To obtain a long-term loan from a majority of banks, you must provide a few standard documents. The following are:

1.Application letter

2.All properly filled out retail loan application forms (this differs by bank, and some may require KYC due diligence).

3.Proforma invoices from vendors who provision your business with goods.

4.The company profile

5.Current utility bill 

6.Last audited account 

7.Previous six months bank statement 

8.Cash flow budget

9.Certificate of incorporation 

10.Evidence of address

11.Other necessary KYC requirements for establishing a current account

12.Details of collateral where applicable (varies from bank to bank and depends on the loan amount)

13.Third party guarantors (this could be requested instead of collaterals or along with it)

Note that various financial institutions have different requirements. It could be greater or lesser than what is listed. However, the above requirements are standard for long-term loans in Nigeria.

What are the types of long term loans in Nigeria?

In Nigeria, long-term loans generally fall into two categories. The classes include:

1. Individual long term loans

This loan caters  to the individual requirements. However, they are mostly  accessible to wealthy individuals. You can also categorize them as follows:

2. Personal loan 

They provide this loan to those who may require it for personal reasons. They primarily lend to those who have the ability to repay because they have a job or receive consistent financial flow.

3. Home loans 

They provide home  loans to individuals who intend to purchase a property. The individual secures the loan with the bank, which finances a certain proportion of the intended property's value.

4. Home equipment finance 

This loan restricts the loan purpose to household furnishings. It offers you a loan to cover the equipment costs and deducts the repayment amount from your salary according to the pre-agreed repayment schedule. Your eligibility for a loan depends on your ability to repay.

5. Auto loan 

Auto loans are for those who intend to buy a vehicle. The amount you can borrow is depends on your capacity to repay. This makes it primarily available to salaried individuals and businesses with good cash flow.

6. Business and corporate long-term loans 

Business and corporate loans cater to the needs of businesses. We can further divide them into the following:

1.Commercial mortgage

2.Equipment lease finance

3.Project funding

4.Operational vehicle finance

5.Asset/ office equipment finance

6.Bill discounting

Where can I get long-term loans in Nigeria?

Obtaining long-term loans in Nigeria is a straightforward choice. Almost all commercial banks in the country offer long-term loans. What varies, however, is the utmost loan amount they can provide. This largely depends on your ability to repay the loan, as well as the bank's capacity. Simply visit any commercial bank and inquire about the form of long-term loan you seek.

As a business owner, can I get long term loans for my company?

Case Study

To obtain a long-term loan for your company as a business owner, you must satisfy the eligibility requirements and provide the required documentation. For clarity, let's examine a case study of David as a businessman attempting to expand his influence.

David has accumulated a wealth of experience in the processing industry over the past decade. During this time, he rose from a low-level factory worker to the head of the division, gaining exposure in the industry's business and manufacturing aspects. He observed that food prices were at their lowest during certain times of the year, particularly harvest season, and skyrocketed during periods of scarcity.

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David discovered the exorbitant prices of yam, particularly in the sparsely populated southern region of Nigeria. Although the prices seem reasonable, he has seen how much cheaper they are in the northern region where they are produced. In the south, while yams are traded by locals, there is no major supplier of hygienic and high-quality yams and their byproducts. He promptly quit his employment upon realizing that this was his jackpot.

Putting in the effort

His intention was to establish a business supplying yams and their finished products to the south, for which he raised capital. He was able to raise funds from family and associates, and the business launched and flourished beyond his expectations. The previous year's earnings of approximately N100 million were more than sufficient to repay the investment and keep the business operating.

Over time, he observed the scarcity of yam flour, particularly during certain seasons of the year. This was of utmost importance in the south and west of the nation, so he decided to target those regions. To accomplish this, he would need to purchase equipment to increase his production capacity in order to meet demand. He inquired with his business bank officer about the most viable means of funding this ambitious endeavor. Despite the fact that he would ordinarily choose an overdraft (N50 million), his officer advised against it due to the short-term nature of the loan. It would not be prudent to obtain a one-year loan to purchase machinery with a return period that exceeds the overdraft period and a payback period that exceeds the overdraft period.

His account executive advised him to take out a long-term loan after careful consideration and discussion. A development institution, such as the Bank of Industry (BOI) or the Bank of Africa (BOA), was recommended as the best course of action. David was able to qualify for the loan despite the extensive documentation requirements due to his many years of experience working for a leading food processing company.

Knowing how to create value with loans

Over time, David assembled the necessary documentation, which included his company's operating profit and established market share, and obtained a loan from BOA at a favorable annual interest rate of 7%. By obtaining this loan, he was able to continue operating his business after its expansion, reinvesting proceeds and paying off the long-term loan.

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In this hypothetical situation, David could not have expanded his business without a long-term loan. This is because he would have taken out an overdraft, which typically has a 12-month term. Although he would have received the machine within this time frame, his company would have to scurry to repay the overdraft within this period. As a competent entrepreneur, he would not likely accept the overdraft because it is a terrible idea. Instead, he would forego his desire for expansion and attempt to save torwards it.

Conclusion

Long-term loans are advantageous for both individuals and businesses. It provides sufficient cash flow to continue operations and acquire important assets immediately. Your ability to access the maximum quantity of a long-term loan you depends on your repayment capacity.