It is common knowledge that the present situation of the country is dehumanizing. The increasing number of unemployed and underemployed graduates flooding the labor market is nothing to write home about.
Many persons have decided to forfeit their dreams of a white-collar job to start up small/medium size businesses to at least earn a decent means of livelihood.
If you are wondering how to start a business, this guide will help. There are different criteria that need to be considered like how to get funds for your business, what type of business to go into, and where to get loans for a start-up.
Knowing fully well that there are disadvantages in getting loans and also advantages, depending on the type of business you are involved in and how you handle your business, you will need to know how to finance a small business and decide which way will work for you.
This article will guide you on how to finance a small business, where to get funds for your business, and suggest the types of small-scale businesses you can try out.
10 Ways To Finance A Small Business Idea In Nigeria
Funding your small business idea is not difficult, with the right tips. Here are 10 sure ways you can finance a small business idea in Nigeria.
1. Small Business Loans
This is one of the well-known ways to finance a small business in Nigeria. So many persons who want to start a business are not aware of the loan process and have difficulties locating a place where they can get this loan.
Some do not have proper requirements like bank statements, personal and business credit scores, valid means of identification, and certificate of business registration, etc to access the loan.
The government has a platform for loan schemes, banks, private sectors, and some FINTECH companies that can offer business loans to business owners that are interested in starting a business or expanding already existing ones.
An example of a government body that offers small business loans to people is the Bank of Industry (BOI).
Getting loans from the bank seems to be what most persons are comfortable with and to successfully achieve your aim, choose a bank of your choice that you are comfortable with their services preferably one you do business with, by doing business with, I mean a bank where you put your savings.
Discuss with them about your interest in getting a business loan and if they offer such services to their customers, ask for the due procedures and follow it accordingly bearing in mind that a breach of contract after signing for the loan comes with severe consequences.
The process of getting this loan might take weeks or months depending on the bank before the money will be given to you.
Aside from getting loans from the banks, there are some other online financial lending platforms that offer loans without collateral.
We have written extensively on some of these legit online lending platforms that give out loans without collateral in Nigeria might want to check them out.
2. Business Grants
Getting a grant is also one of the ways you can finance your small business idea in Nigeria.
People who get grants are fortunate because it is not to be paid back. There are so many organizations that issue out grants to people who need them and have applied correctly for them.
There are different categories of people that grants have been available for and some are made for specific types of business. These types of grants are categorical grants, block grants, project grants, formula grants, and matching grants.
A business grant can be gotten under a block grant and places, where you can apply for grants, are; Tony Elemelu Entrepreneurship Programme (TEEP), Bank Of Industry (BOI), Diamond Bank Bet Programme, AYEEN Financial Grants, etc.
Getting a grant is not that easy as it requires your time and effort in getting one that will solve your needs.
3. Self Financing
Another way to get funding for a business idea is self-financing.
This means of funding your business is really beneficial, easy and at the same time can limit the fast growth of your business as you can only start up a business with your available resource.
Self-financing can be your personal saving which is expected of every individual who wants to start a business to have.
Using it to start up a business automatically makes you a boss of your own and every profit you make will be yours without thinking of how to pay back loans.
This method is the wisest and easiest means to finance a small business and gives full control of your business.
Crowdfunding is also one of the great ways to finance a small business idea in Nigeria.
Crowdfunding is a means to gather funds from the public. This is no doubt one of the most reliable ways to finance a small business idea in Nigeria.
You present your business idea to the public and people who are interested in your business idea come together to contribute funds for the establishment of the business.
The profits gotten from this business can be solely yours or can be shared among these persons depending on the agreements with the public.
However, you have full control of your business and if eventually, the business fails, you’re under no obligation to repay your crowd funders.
Crowdfunding in another word can be said to like an initial public offering (IPO) as the contributors are known as backers can decide to get shares of the business after establishment or some decide to receive the services you render or take your product in return for their contribution.
Usually, most crowdfunding campaigns are using done by non-profitable organizations for the purpose to support the less privileged in their society and those that need financial support.
A small start-up business can benefit from this campaign. There are few Nigerian crowdfunding platforms that can help you.
However, it is necessary to know that crowdfunding is not a guaranteed means of gathering funds for your business.
Looking at the current infantile state of crowdfunding in Nigeria, you might end up not being able to get support from the public and not actualizing the targeted amount for your business.
5. Microfinance Banks and Finance Houses
These platforms are like commercial banks that are focused on giving out loans to individuals to help finance a small business. They provide loans to individuals and owners of small businesses for lower interest.
This another well-known way to finance a small business in Nigeria. Places, where these services are rendered, include:
6. Accelerator, Incubators, And SME Support Organization
Accelerators provide funding to their portfolio companies by taking an equity stake. In some cases, they provide support for free equity.
It gives companies access to mentorship, training, investors, and support they need to grow their business to a great extent.
Incubators are organizations or companies that provide support services for small businesses like, electricity, office space, and business management training.
Subsequently, incubators and SME supports organizations provide business owners with the knowledge and insight needed to run their business and be able to raise funds for the smooth running of their business as these companies do not offer monetary support.
However, many businesses have benefited immensely from the support of these organizations like Tony Elemelu Entrepreneurship Foundation, Fate Foundation, Google launchpad, Y Combinator accelerator program, etc.
To finance a small business in Nigeria, you might also want to consider this way.
7. Angel Investment
This method of financing your business is usually sponsored by a wealthy individual who provides capital to finance a small business in its early stage in exchange for equity or convertible debt.
In other words, this angel investor becomes a co-owner of the business.
In the case of convertible debt (exchange of money for something else), the investor can convert the money given to you for the business to become a shareowner of the business.
Angel investors can be anyone as long as he/she has surplus money or funds at hand at disposal and is interested in your business before being willing to invest.
Many outstanding companies today are beneficiaries of these angel investments during their start-up process. examples are Google, PayPal, Yahoo, etc.
These investors tend to operate in networks, as it enables the work among themselves, get relevant information on potential startups and make an investment in them, also to connect and co-invest with the most prominent investor network Nigeria which is known as Lagos Angel Network (LAN).
There are many others but to mention a few that includes: Dotun Olowoporoku of Starta, Bosun Tijani of CCHub, etc.
8. Trade Credit
This method of financing a small-scale business does not require many procedures and expenses. It is a very good method to finance a small business idea in Nigeria.
It is done by getting your product from a supplier who is willing to supply goods on credit to you and you pay for the product after a specific period depending on the agreement between both of you.
9. Venture Capital Firm
They are a type of private enterprise that are into equity firms, meaning firms that they can benefit immensely from.
Venture capitalists only invest in companies that are in their early stage of the business and with great potentials that they can also benefit from.
They invest in these companies in exchange for equity or an ownership stake. Small start-up firms can continually receive several rounds of investment from this platform.
To finance a small business in Nigeria using this method can be beneficial for business owners with great business ideas.
10. Funds From Family And Friends
Getting funds from friends and families is another means to finance a small business, though this process requires you to tread with utmost sincerity and if needed a legal contract to prevent jeopardizing your relationship with them.
Also, try to tell them of the risk your business might encounter to prepare them for whatever outcome the business will yield.
It is advisable to come to an agreement with them to know if they will want to be part of this business and get equity or it is a loan or better still support that they are not interested in any gain of the company except you want to pay back.
That is all on how to finance a small business idea in Nigeria.
I hope this helps?