Raising money for either business expansion or starting a new business sometimes can be very frustrating, and may is not an easy exercise except the entrepreneur has inherited a fortune which he can easily tap into. There are many reasons why seed capital – money or expansion capital is hard to come by, but three of these reasons ranked highest viz:

  • The Fear of losing money
  • The Inability of borrowers to pay back (i.e. loan defaulters) and
  • Lack of clear vision of what the money will be spent on.

The ability to source for capital could abort your dream of independence and as such we will present in brief some ways in which you can source for capital. As much as we know from experience, the most important thing in starting and running a business is having a salable idea that service a need in the community. The odds is 50-50 regarding ideas and capital. One is not complete without other.

Below are lists, though not conclusive, of tested source of finance to start a new business or expand an existing one

(1).     Partnership

The would-be entrepreneur can enter into partnership with one or more persons, if he alone cannot raise the cash needed for the business. You will need to be very cautious about the personalities you want to join business with. Let it be clear the role each partner will perform so as to avoid a situation where one partner tries to cheat on the other. Also don’t forget this important fact; the partner(s) must possess something you don’t have.

(2).     Personal Assets

There are times you have to sell your personal assets to raise capital for your business. There is nothing wrong with such an idea, if your purpose is right. There are times that when you look around you, there is finance, but in form of assets. If such assets are disposable in their good condition, they could be a good source of capital.

(3).     Personal Savings

The habit of saving is a good one and can be rewardable in case of using such personal savings as source of capital. Personal savings should be what a serious prospective entrepreneur falls back on first when venturing into business. Even if you intend to use other people’s money you still have to provide a substantial portion of whatever starts up or expansion capital your business would need. Both bankers and investors will compare the amount of money you decide you can afford to commit to the venture with the amount needed to avoid jeopardizing its future through under capitalization. If you are not willing to commit a substantial portion of the needed finance, most lenders and investors will assume either that you are not really optimistic about your business success or that you are not hard-committed and they will also decline to be part of it.

To make this option a success, your cash also show commitment to your business, especially if it is a startup by significantly  reducing your personal living expenses or taking a second part time job in the 6-12 months before starting your new business. So plan ahead and save.

(4).     Relations and Friends

Source for capital from relations and close friends are a common source of secondary start-up and expansive capital. If you have relations and friends who are well placed, you can share your mission and passion with them with the hope of securing financial assistance. They might be eager to be part of your success and may be gratified to be involved as full or part-time employees or they may be delighted to both mentor and partially finance your business. Always remember that family and friend invest in you, the business owner, rather than the product or service.

(5).     The Bank

There is no doubt that almost every business need a bank loan. Although, even the best effort will not make the approval of the loan automatic, a thoughtful effort can increase your chances of getting a bank loan for your business. Meeting a bank’s credit criteria enhances the chances of an entrepreneur securing a loan. Understanding a bank’s credit/loan criteria should improve communications between you and your banker. Three critical criteria that influence a bank credit decision are liquidity, financial strength and profitability. Other criteria include experience, trade credit history, your company management ability and economic conditions.

(6).     Other People’s Money (OPM)

The customers and clients you do business with might also be reliable sources of finding. For example if your company has attracted a substantial order from a large corporation because you can meet its specification at a discounted price, the client may be willing to make an advance payment, or deposit, for you to use to purchase supplies.

Supplier are frequently willing to extend their credit terms from a typical 30-90 days, especially if you are building your stock in anticipation of a seasonal selling period or to meet a large order.

(7).     Life Insurance Policy

This is an instrument you can employ to raise loan from your bank by using it as collateral. You can equally use it to raise short-term credit from the insurance company, that is, you can borrow against the cash value of your life insurance.

(8).     The Capital Market

Many small-medium entrepreneurs are ignorant of the fact that they can raise fund through the capital market. The capital market is not only for big companies, small firms can benefit from it under the second tier market arrangement.

(9).     International/Non-Government Agencies

Agencies like International Finance Corporation (IFC) and ECOWAS funds assist enterprises with lines of credit. Entrepreneurs could benefit from such organizations especially if they belong to the relevant associations like the association of small and medium enterprises (SMSs) which help to secure loans from such organization

(10).   Government Agencies

Agencies like National Directorate of Employment (NDE), people’s bank, Technology Business Incubation Centre (TBIC), Family economic Advancement program (FEAP) and many others. provide loan for prospective entrepreneurs. As a would-be entrepreneur, you will need to put enough energy into researching these bodies, so as to secure the needed fund to start your business.

Among other entrepreneur friendly government agencies, FEAP and TBIC have demonstrated practically their desires to assist business owner’s with solving start-up problems. One very objective of TBIC is to help develop the start up of small scale enterprises in Nigeria, because it is believed that the use of the incubation programme will help cut down the cost of venturing into business.

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Additional Links

Creative and Innovative way to raise capital for your Business

Ten Guidelines if you must Borrow

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