5 other ways to raise money for your small business

Banks loans may be the usual option for raising capital, but there are many other innovative alternatives.

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Small and middle scale business have been heralded as the future for emerging and developing markets, such as Nigeria. Apart from the promise of independence, they also provide individuals with an avenue to make money off their interests, and in the larger picture, strengthen the economy by generating value across multiple areas.

However, for most people interested in starting small businesses, finding the money to start is the biggest problem. The most popular option is to explore loans from commercial banks. But the reality is that these loans have high-interest rates, and are not structured to consider prevailing circumstances that small businesses have to face while trying to find their feet.

For those seeking an alternative or two, here are other ways you can finance your small business.

(1) Crowdfunding: Yup. You can get people to contribute capital for your business. Using various crowdfunding sites like Kickstarter, Fundly and Indiegogo, you can get friends, family and complete strangers to pledge to your cause or project.

All you need to do is set a target and invite contribution. For all the ease that it promises, crowdfunding is not practical for large projects or long-term funding; the idea is just to get financial support for singular, one-off projects like a small business idea to create sustainable biofuel options for people in rural areas or selling food products to a community at subsidised prices.

(2) Selling your company’s receivables: In the course of doing business, it is inevitable that some of your patrons and middlemen will not be able to pay for the goods and services that they enjoy, at least not immediately. In those instances, you may provide their needs with the promise of getting payment at a later date.

These debts that are treated as assets are what we refer to ‘receivables’. You can sell these receivables at a discount to raise instant funds. The process of selling receivables (which is known as factoring) is often used by companies who cannot get loans or have to supply large orders before they get paid.

While it is useful because of its immediacy, it is uncommon because it is expensive in the long run. Getting funds by selling your receivables at a 4% discount for 30 days may seem like a good deal, but it’s equivalent to getting a bank loan at an annual interest rate of 48%.

(3) Use a Credit Card: There’s one reason why a credit card is different from your atm card, which is a debit card. Instead of giving you access to the funds you have in your account, a credit card gives you access to funds that the bank provides on the promise that you will pay, usually in instalments at a later date.

So, yes, it’s basically a loan. It is not advisable to use them to use them for large scale financing, however they can help you get out of the occasional jam or cash drought.

(4) Invite Angel Investors: As things stand, you’re the guy with the business idea and no money. How about finding the people who have money and are out looking for entrepreneurs with business ideas?

An Angel Investor is a wealthy individual who provides capital in exchange for something, usually a share of the company or a bond that he can choose to convert to shares of a specified number or cash at a later date.

It’s fairly easy to find an angel investor when you have a good business idea. However, since most of them are retired executives and entrepreneurs, they know what to look for and are hard to impress.

(5) Compete: One of the easiest ways of attracting attention and raising money is by entering into competitions, granted you have a good plan that can withstand the barrage of questions and prodding you will have to take.

Nowadays, thanks to the breakthrough success of the tech space in the past year and renewed focus on SMEs, there are numerous competitions that individuals and companies can enter to pitch their ideas and raise money.

The Central Bank of Nigeria, in conjunction with Heritage Bank, has created the Youth Empowerment Development Programme where young entrepreneurs pitch their business ideas for a shot at low-interest loans. In the last batch, 310 were selected out of thousands of applicants to get slices of a N930 million loan fund.

There are also competitions run by private bodies, most notably in tech and agriculture, where angel investors examine and invest in select businesses.

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