There are various ways to finance your new business. One common requirement that will help you attract funding from any of these methods is to have a good business plan, good corporate structure and evidence of your intention to keep good records. Do your research well and work with the method or ‘combination of methods’ that meets your needs. Here are 5 ways to raise financing (funding) for your business.
- Personal funds from your savings
- Family and close friends
- Government grants and loans.
- Angel Investors
- Venture Capital
Personal funds from your savings – This is one of the most convenient ways to raise funds for your business. The main advantage is that you do not have to look for people to buy into your business which may require you to relinquish some control in your company. The limitation is you may not be able to raise as much as you need from personal resources.
Family and close Friends. You can also raise funds from people within your inner network. Your family and friends may give you loans and/or money gifts. This is often possible where these people trust you and believe in your capability. To get funding from close friends and family, you must have demonstrated integrity and competence. No one wants to lend money to unreliable and unserious people.
Government grants and loans. This is one option that many people do not target. There are many initiatives by government and some banks which deliberately target small businesses. Research on what is available and take steps to apply for funding support. To benefit from these grants, ensure you have a corporate structure and where your business is already existing, be prepared to show evidence of good financial records.
If you are based in Nigeria, visit the websites of the following institutions that handle federal government loans for small business. Details of the requirements and procedure for accessing available loans are on the websites.
• The central bank of Nigeria (CBN)
• Bank of Industry (BOI)
• Bank of Agriculture (BOA)
• Small and Medium Enterprises Development Agency of Nigeria (SMEDAN)
• Development Bank of Nigeria (DBN)
• Nigerian Export-Import Bank (NEXIM)
Angel Investors. An angel investor will provide capital for a business start-up, usually in exchange for a share of the ownership (equity stake) or in exchange for convertible debt. A convertible debt is when a company borrows money from an investor or a group of investors with the intention to convert the debt to equity at some later date. This loan duration and repayment terms are usually agreed by the investors and the borrowing company at the time the capital is provided. Angel investors usually provide financing with an expectation to make profit. Most often they have business expertise and bring their wealth of experience to the table to help you grow the company.
Angel investors usually give support to start-ups at the initial moments when the business hasn’t been tested and not many investors are prepared to back them.
Venture capital. Venture capitalists will take equity in your business in exchange for providing funds. To fund your business in this way, you will give up some control and equity, so be prepared for this. The difference between Angel Investors and Venture Capitalists is that angel investors are those individuals who invest in a new company in its early stage of growth, while most venture capitalists are a professional group of investors who only invest when a new company has been tested and shows indication of potential future growth.
One common requirement that will help you attract funding from any of the methods above is to have a good business plan, good corporate structure and evidence of your intention to keep good records. Do your research well and work with the method or combination of methods that meet your needs.
Remember to seek professional advice for proper guidance on the right method to choose.
Great insight! Thank you!!