Every successful business mogul in the world today is aware that one of the key components for the smooth running of a business is funding. However, finance is a major challenge that businesses in Nigeria and the globe are faced with as it is not usually easy to get startup or investment capital.
Finance is the lifeline that sustains every business, which is why the lack of adequate cash inflow can cause a store to close, firm to crash and business ideas to never see the light of day. Without money you would not be able to procure raw materials, process them, market the finished products, and even pay workers’ salaries.
There are numerous ways entrepreneurs and business owners can raise capital, but we will itemise five ways you can secure the funding for your startup in Nigeria.
This is simply the act of funding your startup with your own personal savings. It could be money from your business or the salary you earn if you have a regular job.
Many small business owners commonly use this means to fund a startup, especially in the early stages. The benefits of bootstrapping is that you are not worried about any debt, you’re not answerable to any investor and you have total control over your business.
2. Family & Friends
Getting money from members of your family or friend group is also another common way of raising capital for your business. It is expected that because they are close to you, some would believe in your vision well enough to release money you need to get your startup off the ground.
Most people in this group who are willing to finance your business often do so with trust and they do not always request a payback, but some still see the need to draw up a formal agreement.
When approaching them for funding, make sure you clearly explain the risks and benefits involved.
To crowdfund entails appealing to random people/strangers to donate to an idea or cause that they will most likely not benefit from directly. Crowdfunding is usually done online through platforms like GoFundMe and Indiegogo.
Though the donors will not ask for ROI or that you share proceeds of your business with them, it is however good to explain the basics of what you need the money for. Crowdfunding helps you reach out to a large number of people. But since it is for business purpose, you can motivate them by offering rewards or equity in your business in exchange for funding.
4. Grants & Loans
Grants are sizable sums of money that governments, philanthropists, non-governmental organisations or corporate firms give to startup founders in order to help them grow their business or start new ones.
It is very helpful and attractive for businesses because it do not have to be paid back. There are federal grants, state grants, small business grants, and grants from private businesses.
Loans, unlike grants require you to payback the money with interest. In Nigeria, banks, microfinance institutions and loan firms offer as little as N10,000 loans up to as much as N500,000 and with reasonable repayment plans.
There are capital loans, asset financing, and trade finance. To get a loan, you’ll need to have a solid business plan and a good credit history to qualify.
5. Angel Investors
Angel investors are high net-worth individuals that invest their money in startups in exchange for equity.
An example of an angel investor group you can approach for funding is Lagos Angel Network. In addition to pumping their money into your startup, these investors also offer valuable mentorship.
To raise capital in Nigeria requires a solid business plan, creativity and persistence. You have to be a realistic optimist, which means to prepare for the possibility that you may not get the finance, while also hoping that they people you pitched the idea to, believe in you well enough to invest. Also when you raise capital, try to ensure that you take your investors through the startup process and progress of the business.