Sourcing financing for small scale businesses

Raising money for business is one of the greatest challenges every entrepreneur has to face. Getting money from banks is like a camel passing through the eye of a needle, the banks may not be as enthusiastic with the entrepreneur’s untested idea.  The interest rate of micro finance banks is often on the high side and mostly does not encourage entrepreneurs

No matter how beautiful your business idea is, you need fund it to get it started. Below are strategies you can employ to raise money for your business.

Personal funding

This can be referred to as “do it yourself.” Most entrepreneurs and small business owners these days have come to the realisation that they will have to self-fund their business probably till better funding opportunities surface. You may have to deny yourself of certain luxuries for some time but believe me it is worth the sacrifice on the long run. You may have to reduce your expenditure, if you have been spending N80, 000 per month, you may have to reduce it to N50, 000.

If you believe in your vision and have an absolute refusal to accept failure as an option, you should feel comfortable investing your own money into your business. In turn, this will make potential investors more comfortable knowing you are no longer new to the business.

Family and friends

Funding from friends and family is a very popular and effective way to raise some initial capital for a business. Of course, these set of people (friends and family) are those who you are close to and those who really believe in your dreams.  Having a good relationship with your friends and family members will help you. Also, personal reputation will go a long way, if you are of a dubious character or if you have shown signs of seriousness in the past, they may find it very difficult to invest in your business.

You will also have to convince them on the viability of such business. If you are turning to them for a loan, you will also have to promise them on when you will refund. If you are taking loan, it is advisable you give yourself enough time to refund.

Co-operative societies

There are a thousand and one co-operative societies you can join. For most of these cooperatives, they need your financial commitment on a regular basis. It may be in form of daily contribution or weekly contribution; this contribution may be quarterly or yearly depending on their rules.

In turn, you may be given double the total amount you saved and be asked to pay back over a period of time with certain percentage as interest.

Partnerships

Partnership has helped a million and one business today; most of the world’s biggest companies today are those that have strong partners. You may also decide to partner with someone with similar business idea, or someone you can work with, such a person should be someone who can make the finances available. It may even be that you have the idea and he or she has the finance. If this is the case, both of you can come to the negotiation table and strategize on how you can work together.

You can also rely on Angel investors. Attracting angel investors is a tricky business, and no matter how exciting and positive the initial conversations may be, there may be unforeseen problems which may include distrust.  Hence, know your business plan, be transparent, back up your valuation with real projections, and build a relationship based on trust.

Angel investors and venture capitalists
New business owners can also raise capital from angel investors and venture capitalists through equity financing. By investing in the equity of a business, angel investors and venture capitalists expect a large return on investment in the form of an acquisition, IPO, or stock buy back in the future, Gofunding says. While this may not seem the most attractive, it is certainly an avenue to explore, especially if all traditional routes to raise capital have been exhausted. One disadvantage of equity financing is that even though the new business owner may be able to raise capital, they may have to give up some of their company’s rights, since angel investors and venture capitalists often desire a large stake in the company or executive board seat. For many entrepreneurs, angel investors and venture capitalists may be their only resort to raise capital for their new businesses