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Is It Advisable to Borrow Money from Loan Apps to Start a Business?

Starting a business is often the dream of many young entrepreneurs in Nigeria. With creative ideas and workable plans, the only barrier for most people is capital. Traditional banks usually demand collateral, guarantors, and long paperwork before granting loans, leaving fintech loan apps as the fastest alternative. These apps can approve loans within minutes, making them attractive to those eager to launch a business immediately. But the question remains—should you really borrow money from loan apps to start a business? Let’s examine the realities, risks, and possible alternatives before making such a decision.

Borrowing from Loan Apps Often Leads to More Losses than Gains

Loan apps like FairMoney, Branch, Moniepoint, and LAPO Microfinance sometimes offer large sums—ranging from ₦500,000 to ₦1,000,000—for entrepreneurs. At first, this looks like the perfect opportunity to bring your business idea to life. However, as a beginner, there is no guarantee that profits will flow in quickly enough to cover repayment.

Businesses take time to grow. From setting up operations, securing customers, to gaining stability, it could take months or even years before profits become reliable. Meanwhile, loan apps operate on strict terms. They don’t accept delays or excuses, and once repayment dates arrive, the pressure begins.

Before you realize it, your business revenue is consumed by repayments, leaving you in a debt cycle that can be difficult to escape. Instead of building wealth, you may end up trapped in financial struggles that wipe out both profits and peace of mind.

Repayment is Rarely Smooth

Another major challenge with starting a business using loan apps is repayment. The repayment window is often short, sometimes just a few weeks or months, with little consideration for whether your business has matured enough to generate steady cash flow.

When you miss deadlines, interest begins to accumulate. This not only increases your debt burden but can also swallow every bit of profit your business makes. In reality, you may end up working only to settle lenders.

Imagine putting your energy into running a business, only to see most of your income going straight into loan repayments. Instead of enjoying growth, your business could stagnate.

Interest Rates are Extremely High

One of the biggest risks of using loan apps to fund a business is the outrageous interest. For example, some fintech platforms charge interest so high that a ₦1,000,000 loan could cost you over ₦2,000,000 in repayments within one year.

Ask yourself: which small business in Nigeria today can guarantee ₦3,000,000 in profit in just one year? The harsh truth is that very few can. Unless you already have a highly established operation, taking such a loan is like setting a trap for yourself.

For beginners, starting with such heavy financial pressure is unwise. Instead of growing your business gradually, you will find yourself working under extreme stress just to keep up with the loan terms.

Constant Pressure and Distraction

Another overlooked aspect of borrowing from loan apps is the mental burden it brings. The thought of repayment deadlines can cause sleepless nights, anxiety, and constant worry. Instead of focusing on building your business, you’re distracted by how to meet repayment schedules.

On top of this, many loan apps are known for harassment when borrowers default. From endless phone calls to threats, the pressure can be overwhelming. With such distractions, it becomes difficult to put your full energy into running a successful business.

A Personal Reflection

At one point, I was offered a ₦400,000 loan that required me to repay ₦700,000 within six months. On the surface, it looked like a golden opportunity. I thought about starting a soft drink distribution business since I already owned a freezer. However, after analyzing the situation, I realized it wouldn’t work.

The business would need advertising, customer relationships, and time to build a reliable sales channel. Meeting the loan deadline within six months while also making a profit seemed unrealistic. In the end, I rejected the loan offer. That decision saved me from falling into a cycle of debt that could have left me worse off.

Alternatives to Loan Apps for Starting a Business

Instead of relying on loan apps with their high interest rates and strict terms, there are better alternatives for raising capital:

1. Support from Family and Friends

Sometimes the best option is to turn to those closest to you. Family members or trusted friends may be willing to provide financial assistance with little or no interest. This gives you breathing space to grow your business without immediate repayment pressure.

2. Save Gradually from a Job

If you’re currently employed, consider setting aside part of your salary every month. It might take time, but this method ensures you start your business without debt hanging over your head. The peace of mind that comes with knowing your capital is debt-free is priceless.

3. Bank Loans with Structured Terms

While banks may require more paperwork, they often provide more realistic repayment schedules compared to loan apps. Some banks even have business support programs for entrepreneurs. If you have a solid plan, presenting it to a bank could give you access to better funding terms.

4. Grants and Business Competitions

Several organizations and government agencies in Nigeria offer grants and competitions for small business owners. Unlike loans, grants do not require repayment. Although they are competitive, securing one can provide the capital you need without financial pressure.