Poor access to finance or funds is one of the major challenges that entrepreneurs in Africa face. This challenge has several ripple effects including hindering the development of micro-enterprises or SMEs in Africa. The availability of finance is very important for the development of enterprises or businesses owned by these entrepreneurs.
One of the common ways African entrepreneurs access funds is through personal savings. The challenge with this means is that it takes a lot of time. Also, it may not provide enough for the business to thrive. Hence, the need for an improved means of funding.
How to Improve Access to Finance for African Entrepreneurs
As an African entrepreneur, you should not rely only on one source to finance your business. There are tons of business financing avenues to choose from. Understanding how each one works will help you narrow it down.
In this article, we will discuss 5 ways to improve access to finance for African entrepreneurs. Let’s dive right in.
Crowdfunding
A lot of entrepreneurs feel this is outdated but it’s an effective way to improve access to finance. Crowdfunding is a way to raise money from a group of individuals to fund your business. Various crowdfunding platforms can help you finance your business.
On the platform, you tender your proposal and tell them how much money you need and also tell them what it will be used for. The investors view your proposal and decide whether or not to invest in your business. You need to make your proposal unique and very convincing.
Some of the crowdfunding platforms are reward-based, which means instead of paying back the money to the investors, you offer them a reward instead.
As an African entrepreneur considering crowdfunding, be sure to know the rules that govern each crowdfunding platform before venturing into it.
Business Grants
Business grants are awarded by either governmental or non-governmental organizations to business owners and entrepreneurs in need to help them start or grow their businesses. It doesn’t have any interest attached to it and the good news is you don’t have to pay it back.
As an African entrepreneur, you should consider applying for a business grant because that will help you get enough finance to fund and promote your business. The business grants and funding for African entrepreneurs are offered by individuals, firms, or corporations to enable them to develop their business, pay salaries of workers, and also for the general wellbeing of their business.
Venture Capital
An African entrepreneur, who is looking to improve access to finance for their business should consider venture capital. Venture capital is a form of private equity and a type of financing that investors provide to SMEs that are believed to have exceptional growth potential.
Partnering with a venture capitalist not only helps in terms of funding. It also renders assistance in technical areas of the business too.
The advantage of venture capital firms is that they can fund various rounds for the same business. They also have a specific sector focus and good knowledge within the sector. Venture capital also helps entrepreneurs expand their business and help them grow.
Angel Investors
An Angel investor is also known as an angel funder is someone of high net worth. They provide financial support to SMEs in exchange for ownership equity in the business. As an African entrepreneur, working or partnering with angel investors to finance your business has quite a few advantages. Sometimes you don’t have to pay the money back. This is because when you partner with angel investors, you offer them an equity stake in your business.
This funding will help your business grow and help to support your business through difficult times. They could help in terms of networking opportunities. You just have to find the right one that fits into your business. By doing this, your access to finance is improved.
Business Loans
One of the ways to improve access to finance for African entrepreneurs is through business loans. You could take up small business loans that have a little interest rate and also a feasible payment plan.
You could also consider a microfinance loan. There are several microfinance banks around. Check a few to know their terms and conditions and know which one works best for you.
Conclusion
There are a lot of ways to improve access to finance for African entrepreneurs. We have discussed some of them in this post. Do you have questions or comments on SMEs in Africa? Kindly drop them in the comments section below. Please, don’t forget to check out other articles on SME360.