Recently, I had an interaction with a lady who preferred to fund her start-up business on loans. This caught my curiosity because I expected otherwise. The excuse she gave for such a preference was, however, not tangible in my opinion.
She was willing to trade with the money of others and not risk her hard-earned money to start or fund her business. I want to assume there could be a few other people with similar thoughts and preferences, hence my need to review sourcing for funds when starting up a business.
In 2018–2019, I developed my first business plan, which was a 45-page plan on mixed cassava and cashew crop planting. A section of my business plan was on business funding, which highlighted the following:
Generate part of the start-up capital from personal savings.
Generate part of the start-up capital from friends and other extended family members.
Generate a larger chunk of the start-up capital from grants, banks (loan facilities), and investors.
Impressive proposed business sources, right? Unfortunately, none of the three above are easy to come by. I will attempt to briefly discuss the above options. However, prior to any start-up business, those likely to thrive are those that have strict financial discipline. Of course, I had passion to actualize the business plan, did several researches, and was optimistic about actualizing the plan. I physically attended two pitching conferences (Lagos and Ondo states, respectively) and applied for other grants as I saw the opportunity. Actualizing your passionate business ideas requires funding!
Generate part of the start-up capital from personal savings.
I want to say that the average Nigerian youth does not have savings. Perhaps he has some savings, but hardly enough to start the business idea he is so passionate about. Personal savings should be a habit imbibed over a period of time. Not until recently have I realized the need to start saving by embracing it as an art and culture. True, there are a million and one financial needs that make us save after spending, which should be the reverse, but it is a commendable attitude to dedicate oneself to having personal savings, not necessarily for target occasions such as rent, tuition, etc. Such personal savings can come in handy when the need arises to fund a start-up business. The moment you want to start your business is not the appropriate time to commence saving or imbibe the savings culture; you should have started that long before so as to have something tangible to contribute to the business start-up funding.
Generate part of the start-up capital from friends and other extended family members.
This form of business funding is atypical and often times yields little or no positive outcomes, perhaps because of the clime that I am in, Nigeria, where the masses are low-income earners. Human nature is oftentimes concerned with personal gains, and they would be interested in knowing what benefits would accrue to them if they were to support your business start-up. It is also difficult to have a friend or relative give a significant amount of money to businesses with prospects, irrespective of how well you may have presented your business ideas. People are also careful and reluctant to ask relatives for help, especially as, when you eventually succeed in the proposed business, the benefactors will want the credit ascribed to them and may begin to encroach on the business. Thus, people would rather avoid asking for financial assistance from friends and family.
Generate a larger chunk of the start-up capital from grants, banks (loan facilities), and investors.
Grants are usually given after a business proposal has been scrutinized and considered scalable. Most grants come with pitching exercises, which can be physical or virtual. Your confidence, precision, and vast knowledge about your business while pitching go a long way toward ensuring you are considered for the grant. Luck can never be ruled out. Grants do come to business ideas, but not as often as to those that have stayed in the business industry for a while, having tested the waters to consider their feasibility.
Funding for start-up businesses can come in the form of soft loans (from family and friends) or bank loans. Soft loans are usually milder and have little or no interest rate when they are paid back. Bank loans, on the other hand, are difficult to access, especially because of the bureaucracy involved, the influences needed to fast-track such loans, the need for collateral, policies, repayment periods, high interest rates, etc. All these and more make bank loans difficult to access for individuals or companies seeking loans for business start-ups.
Investors are a viable means of getting funding for business start-ups. This is where your business proposal is important. The investors are not charity organizations; they want to invest and be convinced that their capital or investments are safe while interest accrues. This is where a business owner can shoot himself in the leg, as in an attempt to entice investors, he may propose offers that are unrealistic or poorly evaluated. Your business traction, break-even, market survey, feasibility, and prospects are very vital. All these factors will influence whether you get investors interested in your business.
In every business, it is important to know the intricacies of the business, even when there is a need to employ the services of a business consultant in that field.
Having business ideas is fantastic; getting funding is a herculean task.
Thank you for reading. I would love to have your comments and contributions