In business plan preparation, it is very important that you identify credible and feasible sources of capital to finance your business. While lots of money may be in the vaults of banks and it appears that you can get enough to finance your business, the reality is that a lot of time may be wasted on going and coming in the name of filing necessary papers for the loan or on trying to convince the bank officials to agree to your loan request.
Most times, it is clear to a bank officer that no money can be given to you but they don’t want to tell you with a straight face. You may be dressed up in a fake garb by these fund providers to the extent of tricking you to open new accounts and putting money in it as they go about processing your request. It may be clear afterwards that you can’t get the loan and you may not be able to withdraw the total amount you have deposited in the bank account to run your business.
It is not at all times that banks can be approached for business funding. There are other ways under the OPM concept, both formal and informal, that can solve funding challenges for entrepreneurs. While some businesses will need big financial institutions to provide funds, other micro and small businesses may source capital from less cumbersome windows. In this piece, I will itemise some of the credible and feasible ways to source funds for your business.
•Networking group: Networking groups may include financing of members’ businesses in their activities. Where this is the case, members can approach such a group to raise money for business.
•Guaranteed interest payment: There are some individuals who provide capital for businesses on agreement to pay guaranteed percentage as interest per annum. These fund providers are not interested in becoming shareholders but their money must be returned after using it for a number of years with interests payable every year.
•Financing through acquaintance: Some friends do have idle funds which they are not readily in need of. This is a good fund you can be allowed to use temporarily and return in good time.
•Private (equity) placement: You may call for private placement of funds in your business. Such funds are equity funds whereby the private investors own shares in the business. They may opt out of the business by selling their shares later.
•Money lenders: There are some individuals within communities who engage in money lending. You may not know about them until you ask people, especially community leaders.
•Cooperative society: It is the coming together of like-minds to pool funds for joint investments. Members can access cheap funds for their private ventures from their coop societies.
•Micro finance houses: These are finance institutions primarily set up to provide funds for micro and small businesses. However, it should be a last resort for short term financing.
•Bank overdraft: This is when you are allowed to overdraw your bank account for a specific period to carry out a project. It is available for people with active bank accounts.
•Equipment leasing/financing: Besides regular equipment leasing companies, Nigerian banks are daily coming up with different project finance packages where you can be advanced money without encumbrances. What they want is a convincing flow of fund into your bank account.
•Money contribution among colleagues: This is by using “The Power of Numbers” to make money available for the use of the group members on rotational basis.
•Daily contribution operators: These operators provide cheap funds to finance lucrative and viable projects.
•Cottage fund providers: They are small finance firms that provide funds for micro businesses. You may not be able to access more than N500,000 from such firms.
•Bank equity participation: Here, a bank can provide equity fund for a medium scale business as a part owner. The bank may choose to partake in the running of the business, and may hands off immediately the business pays back the fund.
•Term loan: This is different from bank overdraft. In term loan, you ask your bank or a finance house to give you credit for a specific period, say medium to long term. You may have to provide collateral security, and the interest you will pay depends on the amount and the status of your business.
Punch
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