The wicked borrows but does not pay back, but the righteous is generous and gives; (Psalm 37: 21 ESV)
Raising money from banks to finance both startup and growing businesses is still the most common source of funding for any businessman today. Many of us believe that banks in Nigeria do not fund young enterprises, especially the startup ones. However, this belief is not true because a lot of our banks in Nigeria today have one product or the other which is developed primarily to grant credits to small businesses. Some banks have specific unit grant credit to finance viable business opportunities for startup entrepreneurs. I know some young businessmen who have benefited from these opportunities. I have also seen quite a lot of such new businesses that have taken one form of loan and advances from banks to commence the business.
The problem is not that the banks do not want to finance your proposal. After all, they are set up to grant credit and make money out of it. But there are a lot of conditions that need to be met but which many would not be able to attain even if the banks were to concentrate on granting credit to finance young businesses. Just like any other business, banks are set up to make money. They can only make money if they fund business proposals from the customers irrespective of whether a plan is coming from a business starter or not. Banks would lend only to those customers whose business proposals stand a better chance of success.
Many of us expect our banks to take up our project and finance without looking at the risk involved such as the risk of failure, the risk of default in payment, as well as other risks that are associated with new businesses. Let us remind ourselves that banks are not Father Christmas. They look for projects with less risk and high return, and there are quite many banks in Nigeria today that are looking seriously for viable projects to finance, whether as a start-up or growing one.
Some of the problems I have identified lately as to why banks do not lend anyhow to young businesses include the fact that our business proposals are most times poorly packaged. Some of these business proposals may also not fall within the risk appetite of the lending banks. Lack of collateral, and entrepreneur’s poor understanding of the industry where he is investing, marketing strategies based on wrong assumptions, et cetera, are other reasons. For instance, many entrepreneurs base their assumptions on the 150 million Nigerian population, whereas almost 2/3 of the people are living in abject poverty which means less purchasing power or ability. Also, many people that want to set up a business today are also half-baked entrepreneurs with less managerial knowledge, and this is one of the reasons why many businesses fail today. No banks would want to finance any business brought by an entrepreneur with some of these problems.
To be successful in raising loans and advances from your bank, you need to work with experts like accountants and bankers who can support you to put the whole business ideas together correctly, recognising all the Do(s) and Don’t(s) in Credit Administration. Sometimes getting finance from banks also entails opening up an account with them for a minimum period of six months. When you are sending in your proposal, you must ensure that your proposal is well packaged, stating why you need the loan, how you want it (whether as equipment lease or cash credit), and your repayment plan and source must be clearly stated. You must also convince the bank that you are a good credit risk by producing a financial guarantor or viable collateral. The collateral may not necessarily be your own, as it could come from friends, family members or business associates. Not being able to meet all these conditions often sends a signal that your request is a “high risk,” hence no bank will go ahead to finance your application.
Raising Capital Through Leasing Bureaux
One of the emerging ways of financing a startup business in Nigeria today is through equipment leasing. This method of finance has helped a lot of young people in business in recent times. Obviously, why we need the start-up capital is either to use it as working capital or to acquire machinery, office tools, motor vans or vehicles, et cetera. The leasing companies can provide you with some of these items under a lease agreement. This agreement will allow you the use of the equipment by paying a small amount called lease charge on a monthly basis. Ever before now, only few merchant banks and commercial banks engaged in equipment leasing, but now a lot of private firms are into the business, making it possible and accessible for anyone.
The type of equipment you can get from these companies ranges from domestic equipment such as those we use in the fast-food operation, bakery, to industrial equipment like machinery to set up a factory. Some of these facilities often come with the option of outright purchase at the expiration of the lease period. This arrangement saves you the burden of looking for cash to buy the items. Quite a lot of people have started the business using the scheme, so I advise you too to get the details of how you can benefit and the list of the leasing companies from the Equipment Leasing Association of Nigeria at Gbagada, Lagos.
Financing Through Current/Venture Capital
Aspiring entrepreneurs also have the opportunity of getting capital through grants from international donors such as Micro-finance Capital Investment activities, UNCDF, Overseas Private Investment Corporation (OPIC) and the rest of them. Though I have not personally consulted for anyone in this area, evidence has it that some NG use and venture capital work in partnership with these international organisations. You can obtain information about them from organisations like Step Fate Foundation or subscribe to a publication of Money Directory by Big Heart Ltd. on firstname.lastname@example.org.
Apart from the entire sources I have discussed in this article, there are quite a lot of ways to raise money. Do not make the mistake of thinking that the only place that you can find money to start up a business is through the banks. From today, start thinking about how you can invite private investors, friends and family members to share in your business as silent partners. Consider the possibility of meeting the leasing firms to provide the primary equipment you need to support your startup. Disregard the stories you hear from people that money is difficult to get and become financially independent through entrepreneurship. Start talking to people, book appointments with those silent millionaires to discuss your proposal.
I believe that there is more money in this economy than we can imagine because many of us get carried away with the capital tight story we hear around us. The truth is that now is the time for you to make that move. This is truly the age of creative finance and you must not give up. Make use of every possible idea you can imagine to raise capital for your business idea.