Monday, 21 December 2015

6 Alternative Financing options for Start up

Some of the major challenges facing start up is  Unfavorable business Environment, poor funding,  poor managerial skill and lack of access to latest technology(FSS 2020 SME Sector report, 2007)
Poor funding top these challenges. Banks only offer credit to business with good credit rating history. Commercial Banks funding to SMEs is minimal or zero in Nigeria. The Central bank Governor Mr Godwin Emefiele also said  this during the seventh Nigeria's Bankers Committee meeting held in Lagos. He said "I must say that the Nigeria banking sector has not played active role in supporting the SMEs, and this is without reasons. We had issues in the past were people took loans and didn't pay".

I believed, there is more to this because most of the bad loans acquired by AMCON has to do more with big businesses rather than the SMEs. The point is that start up can't meet the collateral required for bank's loan. Below are other alternative financing option for startup

Loan from Relatives.
Obtaining soft loan from Relatives for startup especially those that  can afford parting with their money for a specific time is highly recommended. This represent 29.8%((2012 Federal Government SME survey).  Aliko Dangote got a soft loan  from his uncle for his start-up in 1977(500,000 naira). Today, it would have been difficult to imagine Dangote group without this huge start up capital. This is one of the many instances of alternative start up Financing Option by relatives.

Personal Savings
This is the best and most realistic start up Financing option. For business dummies, securing bank loan for business could be risky because of poor management skills and high odds that the start-up might not work. Personal Savings, personal resources or asset could assist any start-up. This represent 54.6% of all SME satrtup capital(2012 Federal Government SME survey).  However, it is advisable to separate business expenses from owners expenses and record start up capital as a liability in the book of account  which will be repaid later as business grows.

Funds from Extended Network
With good previous reputation and integrity; friends, colleagues or extended network could finance a start up. A good professional profile and presence on LinkedIn could generate leads if properly leveraged.

Good business plan could attract interested investors. However, the investor will have to be convinced of the potential and managerial skills of the owner. It is always difficult getting an investor to finance a fresh start up even with the best business plan. Most investors prefer acquiring a promising start up. There are ways to get investors to invest in start up. Previous reputation, Good professional presence on LinkedIn or blog and  recommendation as well as word of mouth could assist.

Investors could be
A. An Angel investor
Angel investor fund business at its start-up phase. There are basic requirements for Angels in the United State.

Angel investors has formed a formidable networks across countries.

B. Venture capitalists
These are investment companies that specialize in business funding. It could be small business or big business funding.

Investors can meet online or offline

The Online platform is

Crowd funding website
This are online platform that helps start-up to raise capital. It includes small business loan based funders, charity based funders and business specific funding.

Loans from corperative
most business association or corperatives allows their members to draw a particular amount on request for business purposes.

There are Agricultural corperatives, market women association trade association and manufacturing association.

Business Grants
Small business Grant is another alternative financing options for start-up.

Grant is the oldest and popular start-up financing options prior to Angel investors and venture capitalists.

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