Creative Ways For SMEs To Access Funding
Businesses face several challenges in today’s ultra-competitive environment. However, lack of funding lies at the forefront. For businesses in developing societies such as Nigeria, this challenge is even more pronounced. It is safe to say that without access to capital, no business can thrive as it plays a crucial role in the establishment, sustenance, and growth of every business entity. Much like every problem has its own range of opportunities, the challenge of funding has also birthed a plethora of options for the business owner.
Traditional loans such as commercial bank loans are one of the most obvious sources of funding for business owners. However, given its limitations like the need for a collateral and the high interest rates, small businesses need to find creative ways to access funds. Below are some creative ways to access funding as an SME.
1. Microloans
SMEs that cannot qualify for loans in a commercial bank can have access to microloans. Microloans are small loans issued by individuals or microfinance institutions to SMEs on a short-term basis with low interest rates. Most microfinance institutions in Nigeria give uncollateralized loans to small business and they require the entrepreneur to have a guarantor. Through this method, the entrepreneur who does not have collateral will not be financially excluded and will have access to funds that can help grow his or her business.
2. Crowdfunding
Crowdfunding is an innovative method of getting capital to run a business or invest and more people are starting to understand it. As opposed to seeking large amounts of money from people, this method involves requesting small amount of money from a large number of individuals. Crowdfunding targets a large number of people with little contributions to finance a business idea. Technology has made it even more possible, there are a series of crowdfunding websites that connect public investors and entrepreneurs to achieve set goals.
With crowdfunding, an entrepreneur seeking for funds can sell his or her business ideas to millions of people around the globe, in addition, to support from their network of family and friends. Crowdfunding platforms like RocketHub, Fundable, Fundly, Kickstarter, and Indiegogo are great platforms to start with. To be successful with crowdfunding, you must be able to convince investors, friends, family and the general public that your business or project is worth every Naira of their contribution.
3. Peer-to-peer lending
Sometimes the easiest way to get money is to ask your friends. This is also a common approach to fundraising for the average micro and small business owner. A lot of start-ups chose to raise initial capital by borrowing money from their peers as pitching a business idea to bigger investors might be tough without a clear track record in place already.
4. Business Angels
Business angels also referred to as angel investors are wealthy individual investors who invest their money as capital for the development of a business in the hope of future financial gain. Angel investors stand out from other types of funding options because they are always on the lookout for the next business to invest in. These angels help entrepreneurs with start-ups and also act as mentors, guiding small businesses. Many of the biggest tech companies today, including Google and Yahoo, were funded by angel investors.
Good business angels are often marked with key characteristics sucn as genuine love for supporting start-ups, joy in helping entrepreneurs build their businesses, as well as their willingness to take risks despite the possibility of the business going bad. They do so as long as they too can believe in the potential of the business to blossom. Indeed, angel investors can be trustworthy and they can also serve as the patient support systems that a budding business needs.
5. Venture capitalist
Similar to angel investors, venture capitalists have money to invest, and they want to invest in young, up-and-coming businesses with a high potential for growth and monetary returns. However, unlike angel investors, venture capitalists (VCs) are investment managers who invest the money of others. It is a form of private equity investment only with the addition of their focus on newer businesses. As opposed to investing simply because they love the sound of your idea, VC’s invest in businesses with good prospects. VCs are majorly interested in making money on their investments, and some may also feel the best way to do this is to have some control in how the company is managed. If the business idea is good, VC’s want a stake in it.
6. Grants
SMEs and entrepreneurs can also take advantage of various grants to promote their businesses and realise their ideas. Although the eligibility requirements for getting grants are many and specific, it is a cheap method of getting fund for businesses. Grants have an advantage over loans because the SME/business does not have to pay interest, unlike the latter which is compulsory. While grants are highly competitive, they are attainable.
