CAPITAL FOR YOUR START-UP BUSINESS
What most people see as the major problem of start-ups is capital and on many occasions I have emphasized that the problem is not capital but getting realizable ideas, having said that raising capital is by no means a small obstacle. There are few ways to raise capital for start-ups which I am willing to share the titbits with you.
After coming up with your realizable idea, the first thing is to draft/draw out a business plan; your sweet idea on paper, the expected expenses, infrastructures needed, capital required in stages, income expected in stages and your realistically expected success rate. This is what you present to experts for review and redress, and ultimately you have a copy you can negotiate with.
Financing Your Start-up business
This is one option most people have planned towards but got lost along the line because they somehow misplaced their priorities. I am sure we are all too familiar with this “I will work for a while and save up do start my own business”, only for the person to get stuck behind the desk of 8-4/9-5. Saving for a particular project requires the best of disciplines and from my experience, the best way to save for a project is to open a project account with banks. This kind of account has the following features:
- Drawing only on the agreed date
- Tangible interest on savings
- Standing orders to ensure you do not default from saving
- Corporate borrowings
For start-ups bank borrowing can be really difficult to secure, except you have some irresistible collaterals. However, some people are still able to secure loans from banks, and most common ways are:
- PLAS: Personal Loan Against Salary is actually designed for the employed to finance their major projects, and if you are thinking of starting your own business while you are still employed then it also counts as project. To enjoy this, you have to have your salary account with the bank and most banks won’t allow you borrow more than 30% of your salary. If you earn N1.2million/year then you can have up to N400,000 a year and N1.2million in 3years.
- Assets financing: Banks also assist with buying major business assets/equipment, you may/will be required to pay an upfront being part of the cost of the asset (between 25-30% contribution) while the bank provides the rest. The asset will be bought in your name and the bank’s name. The asset is your collateral in most cases and upon paying full installments, the ownership will be transferred to you as the sole owner of the asset. This has assisted many new start-ups to buy the expensive business equipment the need. The Nigeria Bank of Industry is into this and you can read up more on their requirements by visiting boi.ng/apply/register
- Business loans: Most banks avoid giving start-ups loans because less than 5% of new business make it to the second stage of business cycle, this is due largely to unrealistic business plan. So if you have a solid, realistic within reasonable risk business plan you can secure loans from banks, especially when it is within the industry labelled as critical such as agriculture, manufacturing and tourism. You would be required to present collateral(s) and in some smaller banks (microfinance and community banks) belonging to a corporative group is all the collateral the need.
- Lending through corporative society: Some banks lend to corporative societies and as such members of these societies have access to start-up funds, even in cases where banks don’t lend to corporative societies, the mechanism of the body is such that funds will be available to members at all time. The workings of corporative society requires that you contribute money periodically and in turn you have access to loans with minimum interest rate. This is a very viable means to raising capital for your start-up and it requires very little or no paper work.
- Contact list financing
This is one means of borrowing that I came up with, many clients have used it and it worked like magic. The major problem most people have with financing is that they want the money at once; a single payment from somewhere and this rarely happens. Contact list financing is simply sourcing the capital you need in bits from your list of contacts (friends and family). For instance, you want to start up a business of N200,000, most likely no one on your contact list can borrow/give you such an amount, however, if you split the money to say N10,000 each, you can have more than 20 people on your contact list who can make the money available either as a loan or a gift, that is how contact list financing works.
- Angels & investors
Remember the first step is to have a business plan that has been reviewed by experts, harmed with this you can approach Angels (people who give money to start-ups in exchange for share in the business) or investors (professional investors who give financial support to growing business in exchange for higher shares or future paybacks). In the Nigerian context, angel and investors are very rare however still very much available.
There are three main requirements of starting up a business; (a) Business Idea (b) Idea Financing and (c) Business management. Going into partnership for business should be to satisfy any of these three reasons, depending on which area you require assistance. If you have a realistic idea, you can source for people with the finance and become legal partners (have a memorandum of understanding and article of association).
I hope this has been helpful in directing your search for capital to finance your dream project. Feel free to contact me on firstname.lastname@example.org for more information.