Eventhough there are a lot of opportunities to start a business in Africa, finding options to get funding for a small business in Nigeria and most developing countries can be quite a challenge for entrepreneurs.
Compared to bigger enterprises who are more likely to have access to credit facilities from financial institutions, most small businesses have always had a tough time when it comes to finding options to raise funds for their businesses.
The few startups and small businesses that manage to sort out their funding needs often times have had to go through rigorous funding requirements, stringent selection processes and high end business expectations.
As a small business in need of funds for business growth, you may never have a chance at the traditional funding options but I’ll be sharing with you in the following paragraphs, some major alternatives and realistic ways you can get funding for a small business even if you’re just starting from scratch.
Get a Business Plan
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One of the first steps to get funding for a small business is to get a business plan.
Outside the fact that a business plans outlines your business goals, your approach to achieving the goals, important timelines and other crucial details, having one in place gives you ideas on the funding you’ll need and the specific intervals you’ll need that.
It is also an important document a prospective investor will want to see to consider the viability of your idea before they can invest in your business.
Overall the purpose of a business plan for most businesses is to attract investors, raise funds and provide a strategic roadmap for your business.
So, before you think about sourcing for funds, get a business plans that outlines all your business details including your business model, target market, financial projections and growth strategy.
With this in place, it gets easier to take the other important steps towards generating startup funds for your business.
Leverage Personal Savings
This is one of the most popular source of business funds for most small businesses in developing countries.
One of the easiest and most practical ways to raise funding for a small business is through your own personal savings.
This method is very effective for micro businesses with need for little startup funds. And for entrepreneurs seeking to bootstrap their business.
The good thing about personal savings is that it doesn’t come with a lot of drawbacks. For example, you won’t risk giving out a large part of your business to someone else as equity or having to think about how you will repay the debt.
The money is yours to disburse. And whether you make huge or little returns on investment, you do not have anyone to question you.
Critics have always argued that your savings might not be able to fund your business in most cases but thing is, you don’t have to fund your entire business using your savings. That’s the truth.
You can always save up funds and then launch your business when your savings gets substantial. As the business gets to a certain level, you can re-invest from your profits or seek external funding at that stage as you’d have now had more resources to leverage as collateral for a loan.
For this option to work effectively, you might have to save up for some time, depending on your current income or the nature of your business. And you will have to be very intentional about this.
Engage Friends & Family
Another easy and popular option to get funding for a small business in Africa is to go through family and friends.
Considering that your family and friends already know you too well, it is always easy to convince them to support your idea, instead of approaching outsiders.
The good thing about family and friends as sources of funding is that most times they are not just investing in your business, they are also investing in you. So, it’s always easy to rally around their support. Especially in a very communal place like Africa and Nigeria.
But, that doesn’t mean you have to take their support for granted.
So, before applying for small business funding from family and friends, you need to come up with a realistic business plan that captures your business idea and other key details.
Even if you don’t want to give them a business plan in black and white, be able to explain in details your business idea, what you want from them and what they will gain in return, explicitly.
Let them know whether what you need is a grant, a loan or an equity investment. And you have to think about each of these options before you decide on them.
If it’s a loan, you’re looking to get, come up with terms and agreement, including benefits and also the duration of period they will likely get a refund.
Where it’s an equity investment on the other hand, inform them in your agreement of the possible risks involved, what they are supposed to get as returns on investment and the potential time range they should expect that outcome etc.
Explore Partnerships
Instead of waiting to own 100 percent equity in your business, you can engage in a strategic partnership, to get funding for a small business.
What happens with strategic partnership is that instead of you bringing in 100 percent funding for the business, you can partner with one or two other persons to come up with funds for the business.
In return, your partner(s) could become co-founders, own equitable shares in the business or benefit from your profit, however you choose.
Good thing about partnerships is that it spreads the risk. So, should things go down south, you don’t have to be the only person counting the loss.
Another advantage of this funding option is that it helps in getting the needed funding for expansion. Although a major disadvantage (if you call it that) is that you won’t keep 100 percent profits.
In most cases, if you choose to raise your funding using the right partnerships the benefits far outweighs the drawbacks, especially where you can get the right kind of business model.
While shopping for partners however, be sure you’re looking out for people with similar interests as yours.
Also, look out for the kind of business partners with a decent experience and trustworthiness. This will help you in building your business without a lot of rancor.
Again, before getting started; come up with a realistic agreement that will work for both you and your business partner, putting into consideration, the current stage of the business and the future, get everything, written and signed by both parties.
Source from Microfinance Banks
With a decent credit rating, you can also get funding for a small business by borrowing from microfinance banks.
There are a handful of microfinance banks in Nigeria and most African countries who are well involved in the business of giving out soft loans for small businesses.
Where you can’t raise funds for your small business through the other avenues listed here, you can head over to source for funds from microfinance banks.
A lot of these microfinance banks offer both personal and business loans that’s up to 7 figures with a flexible repayment plan.
Instead of allowing your business idea to die out for lack of funds, you can always approach these banks for funding for your business.
One thing you must note while going for these banks is that most banks may require some form of collateral which you’ll have to provide before you can access their credit facility.
Also, take note of their repayment plans and interest rates before deciding on the ones to settle for. This is very important.
Always remember that some of these microfinance banks will want to see your business plan and other items you’ve already put in place for the success of your business before they can consider giving you any loan.
In general, I will only advice you borrow from microfinance banks either as a last resort or where you’ve already started your business but in need of funding to grow the business and take it to the next level.
Try Crowd funding Options
Crowd funding is one of the recently popular options to raise funding for a small business. It leverages a large number of funders, to raise funds for startups and ideas.
Although it is relatively new compared to the other small business fund raising channels, it is one of the easiest options you can get a large number of people to sponsor or raise funds for your small business.
Even though it is not so popular in Nigeria and Africa in general, it is gradually gaining grounds.
A good number of businesses are using crowd funding to start their businesses and there are a number of crowd funding startups like Corwdyvest, Naijafund etc dedicated to crowdfunding for African businesses and you can hop on these platforms.
Typically it takes 6-8 months between starting an equity crowd funding campaign and getting the money over to your bank account, going by the formal way.
You can also check out some crowd funding websites in Nigeria here.
Outside that, you can also try out the informal crowd funding by getting a number of your friends and family or acquaintances to contribute a certain amount for your business in order to get certain equity over a defined period of time.
Depending on what works for you, the second option can be very realistic where you don’t have a lot of money or connection to run a crowd funding campaign.
But in whatever you do, you must also realize crowd funding has its own shortcomings as well as advantages and requirements. And you should watch out for this.
Apply for Grants
Business Grant is a popular channel most founders are using to get funding for a small business. Especially in Africa and most developing regions.
As a small business sourcing for funds, there are a number of grants available online both from government and private sources.
For example in Africa, there are grants from organizations like the Tony Elumelu foundation, among many others, giving out grants for promising startups.
There are also a number of Government as well as international grants and interventions, available for businesses which you can choose to apply to as much of the, based on your goals.
One noticeable thing about grants is that it can be highly competitive as there are always, other applicants. So, you want to put out your business as well deserving, to really get these grants.
Final Words
Frankly, these are not just the only channels to get funding for a small business. There are so many other ways you can go about raising capital for your small business but these are some of the most realistic channels out there for developing countries like Nigeria.
While choosing any of these, always remember to consider your own realities as per what you want for your business, the kind of funding that can work for you and your overall goal.
Also, remember that it’s not just funding that keeps a business going. A combination of the right business model, realistic business strategies, the right market and a whole lot of other factors will always play a role in the overall success of your business and you cannot ignore these factors.
And most importantly, beyond starting out, you must get your business goals and the right strategies in place as well as consistently do your best to get your business up and going.
Now, starting and running a small business can be lonely and difficult but with the right skills, you can achieve a lot more. And you can join Win Media Academy here to get equipped with the right business skills and find the mentorship that will see you through as you build your business.
Now, it’s over to you. What’s your biggest challenge when it comes to starting and growing your small business? Drop your comments below.
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