One of the greatest challenges you will experience as an owner of an SME in Africa is finding money to run your business. Whether it is renting an office space or purchasing the necessary equipment, you will need some money to get your business running.
According to a recent report, more than 94% of new businesses pack-up within the first year. Furthermore, the report ranks “lack of business funding” as the major reason for this. Hence, making money is the life of any business.
In this post, we will explore 7 unique ways that you can source funding as an owner of an SME in Africa.
· Using The Bootstrapping Method
Bootstrapping otherwise referred to as self-funding is one of the most effective ways to finance your business. This business funding method seems to be the most common among African business owners looking to start their businesses. One of the challenges that you will face as an owner of an SME in Africa is finding money to run your business without any form of financial commitment on your part.
Hence, the reason why self-funding or bootstrapping is the number one way to fund your business. Several benefits accompany using the bootstrapping method to fund your business. For starters, investing your money into your business has a way of making you committed to its success. You will almost do anything to ensure that your business doesn’t crash because you have invested your life savings into it. Also, you will be able to run your business without any pressure to refund the company or individual you sourced for business funds from.
· The Crowdfunding Option
For several decades, businesses have relied on the internet of things to market and sell their products and services. However, using the same medium as a means of raising business funds was not a common practice until recently. This indicates that many SMEs in Africa and other parts of the world use the crowdfunding option to sustain their operations. Hence, the reason why you should consider it as a viable way to source money to run your business.
The concept of crowdfunding has to do with getting investments, loans, contributions, or pre-orders from multiple sources at the same time. Today, there are a lot of crowdfunding platforms like GoFundMe on the internet. These websites allow you to create a campaign with the target amount you are hoping to raise. You can also include a few perks for anyone that pledges to raise a specific amount of money.
· Using The Angel Investment Option
As the name implies angel investors are people that are interested in investing in small businesses. Typically, angel investors have a network or groups where they take a look at your proposals to determine if your business is worth investing in. In some cases, an angel investor would offer pieces of advice or mentoring in addition to the business funding you will get.
Prominent businesses like Alibaba and Google all benefited from angel investors at their elementary stages. Hence, the reason why, as the owner of an SME in Africa, you should consider angel investment as one of the unique ways to raise funds for your business.
· Accessing Business Funding Through Loans
One of the viable ways to source business funding as an owner of an SME in Africa is through loans from financial institutions. Taking up loans from financial institutions such as banks and microfinance organisations like NMFB is not only an old way of raising business funds but an effective way of doing so.
However, to access business funding through this means, you most likely would be required to show proofs that your business is gaining traction. Some financial institutions (especially private) would request that you show proofs that your business is already generating money.
· Winning Contests To Raise Funds
There are several online contests that you can get involved in to raise funds for your business. These contests are often geared to help encourage business owners to either set up their businesses or to take them to the next level. Some of these contests would require you to either draw a business plan or showcase your product.
In some cases, your business will also get some media coverage, hence, helping to raise awareness about your brand. Your goal, should you decide to enrol in this sort of competition, is to enhance your success chances by making sure that your project stands out.
· Government Financial Empowerment Programs
One of the ways to source business funding as an owner of an SME in Africa is by enrolling in government financial empowerment programs. These programs are often aimed to help micro, small, and medium business owners to either start-up their businesses or to maintain their running costs.
In some cases, these programs like the AGSMEIS are aimed at helping businesses that are under specific industries like the agriculture industry. In other cases, almost any SME can apply to access funds (which may come as grants or loans) to run their businesses. Some examples for Nigerian SMEs are SMEDAN’s financial empowerment programs.
· The Venture Capitalist Option
Although there are lots of similarities between a venture capitalist and an angel investor, there are a few differences. For starters, the venture capitalist wants a form of return like a share of equity for their investment. Typically, a venture capitalist will also want to be involved in the decision making of your business.
In most cases, the business owner would have to share the control of his business with the investor. The venture capitalist believes that the only way to ensure that he gets the returns he intends for his investment is by having a level of control over how the business is being managed.
Conclusion
Although the processes involved in sourcing for business funding might seem overwhelming to an owner of an SME in Africa, the benefits are endless. There are varieties of options to pick from. Hence, if you feel uncomfortable with some, you can try others.