The need for financing a Small Business has been one of the recurring challenges faced by micro, small and medium scale enterprises in developing countries like Nigeria. In a 2013 MSME Survey by SMEDAN and the National Bureau of Statistics (NBS), the top area of assistance that most micro-enterprises sort for was with respect to finance.
This was further corroborated in a June 2020 survey by PwC, which revealed that obtaining finance is the most pressing problem that MSMEs currently face. This reflects how the problem of finance continues to persist and the need for further enlightenment on the various options available beyond the ones publicised.
As an entrepreneur, it is important to note that funding can be sourced through diverse means. Though most small business owners are quick to seek loans from financial institutions, it is important to know that these are not the only sources of finance. Thus, it is shrewd as a business owner to look inwards and seek financial incentives that are not burdensome as explained in our article titled “Top 10 Financial Strategies to Help Grow Your Business”. These sources are explained below:
1. Personal Finances
As an entrepreneur, you need to first inject your personal finances (savings or cash earned from an investment or asset either on a continuous basis or after sale) into your business before requesting that others support same. This shows your level of commitment and confidence in your enterprise. By being the first investor, shareholder or director of your business, you are able to attract others to invest.
If you are just planning to start the business, it is advisable to save from your current earnings before venturing into the business. As an existing business owner, it is also prudent to pay yourself like you would if you hired someone to run the business like you do. This would enable you to save from your income ahead of rainy days.
It is important to know that you are your own cheerleader and first financial aid; so, when the days are blooming, plan for the gloomy days.
2. Friends and Family
Friends, family and well-wishers are one of the easiest sources of funds. With them, you sometimes do not have to show any major documents or pay interest. All you have to do is properly articulate how you intend to use the funds, the importance and impact on you and the community as a whole, and they will be open to supporting your business.
In a country like Nigeria where poverty and unemployment increases daily, friends and family that are capable will be willing to contribute to helping you set up a business so they can be part of your success story rather than continue to give you money for expenses that will not yield anything in return.
Though some persons find it difficult to seek support from family and friends because of the notion that business must be separated from family and friends, it is important to note that friends and family are quite easy to convince than a bank official, and should not be ignored as a source of finance. In addition, you can consider their financial support as payments in advance for your products and service or investments in same for which you can give them a percentage of your shareholding. Also, by investing in your business you can easily cultivate them to becoming loyal customers and brand ambassadors.
Cooperatives are one of the oldest forms of accessing funds for small-scale enterprises, especially in rural areas. They are owned and run jointly by members who contribute to the same and benefit from profits earned through interests on borrowings and access to funds saved by members at low-interest rates. This further helps bridge the credit gap for micro, small and medium scale enterprises.
As a small business owner, cooperatives are one of the sources of finance that can be explored to obtain credit to start or grow your business. Often, what cooperatives seek is consistency in contributions and proof that funds borrowed would be repaid.
4. Invoice Discounting
This is a type of finance that allows businesses to receive cash on their invoices before the customers make payment. It is a form of financing that enables business owners improve their working capital and cashflow positions. This facility allows businesses get prompt payment while finance institutions discount their invoice. For FCMB, this facility is known as the SME Invoice Discounting Finance (IDF) and is available for a period of 1-180days to contractors, manufacturers and traders.
5. Grants and Loans from Financial Institutions
Small businesses are important to every economy because of their capacity to create more jobs especially in developing and emerging countries. According to the Nigerian Bureau of Statistics (NBS), small and medium scale enterprises (SMEs) have contributed about 48% to the nation’s GDP in the last five years.
Consequently, it has been critical for the government, financial institutions like FCMB and international agencies to regularly intervene in ensuring easy access to funds. This has led to the creation of agencies and funds like the Nigerian Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL), the Bank of Industry (BoI), the Development Bank of Nigeria (DBN), SMEDAN, NERFUND, Microfinance Fund, amongst other financing opportunities and policies initiated to ensure businesses in the real sector are equipped with the funds required to ensure stability and growth for their business.
In recent times, technology has facilitated access to information about financing opportunities within the Business Ecosystem. Members of various associations such as Chambers of Commerce and small business communities and groups are becoming pivotal in ensuring business owners access the information required to take advantage of financing opportunities that arise. Small business owners can benefit greatly from this by ensuring they maintain the documentations required to take advantage of grant and loan opportunities when they arise.
As a business owner, do not underestimate the other sources of funds available to you beyond loans and grants from financial institutions. A quick loan from FCMB will go a long way.