In setting up a business, you need a brilliant idea but however, there is usually a slim chance of attaining adequate financing and obtaining it from the right source. The business idea and capital go hand-in-hand because financing is the tool that drives the idea into execution, and eventually success if the right approach is applied.
Entrepreneurs who are running sustainable businesses raise capital through various means and below is a list of tested and approved sources of finances used to start a new venture or expand an existing one:
Personal savings
Savings can be attained through diverse means including income from employment, retirement benefits or even from the proceeds of selling assets such as luxury goods, expensive jewelries, cars, etc. Due to the high interest rates in Nigeria, it is often advantageous to show personal commitment to your business idea by investing your funds in to your business venture. Personal savings are what a serious entrepreneur falls back on when venturing into a business. If you are not willing to commit a substantial portion of the needed finance, most lenders and investors will assume that you are not dedicated or optimistic about the success of the venture and consequentially, they may decline in funding your venture.
To show you believe in your idea, you must be willing to invest personal savings (at least 35%) into the business and bear the initial start-up cost. By so doing, you are also encouraging potential lenders and investors to get involved in driving your idea towards execution.
Partnerships
There is a common saying “two heads are better than one” and this suggests sustainable partnerships in starting a venture. Sometimes things work better if you have another person who shares your dream working alongside with you. In business, the coming together of two or more people to share business ownership, profit and risks is called a partnership. When one person cannot bear the burden of starting and running the business alone, then it becomes crucial to seek a partner with the capacity of filling that gap.
A classic example of a partnership is a situation where one person has the idea while another has the capital. The person with the capital can invest into the business idea based on a mutual agreement between both parties, however, you must avoid going into partnership with people whose characters are questionable.
Also avoid misconstruing that the contribution of a partner comes only in monetary value. Partnerships could evolve from different mediums e.g. being given a warehouse, an office space, a vehicle, equipment, technological expertise, regular consultation, – all towards implementing a business idea.
When entering into a partnership, the role of each partner must be legally binding to avoid a party bearing all the burden and risks of running a business. Responsibilities and profit sharing arrangements must be clearly defined and signed in a documented plan of agreement.
Fundraising
The most common source of expanding capital and secondary start-up costs is from family and friends. If you have friends or relatives who believe in your business idea, share your vision with them and hopefully you may secure their financial assistance. The zeal to be part of your success may even drive their involvement in diverse ways, for example, as full or part-time employees of your venture, mentors or just financial pillars of support.
In raising funds, you must be confident about presenting your idea tactically to the right people, while ensuring that explicit details are not given away. In a constantly evolving world, you must protect your business idea from being developed ahead of you and this can also be done legally by securing intellectual property and ownership of your business idea.
Bank Loans
Though banks offer a number of financing plans and loan services, caution must be taken when accessing them. You must clearly understand the terms and conditions underlying the loan facility before signing a financing agreement with a bank. You must also ensure that the interest rates are realistic and affordable for you in the long run.
Adequate research on banks that offer loans at lower interest rates will go a long way in avoiding huge debts. It may also interest you to know that there are financial institutions, especially those supported by the government that offer zero interest loans to individuals in certain industries and you must research if your venture qualifies under such schemes.
Grants
Recently, the Nigerian government introduced the “You-Win” program. This program allows young entrepreneurs to access funds from the government if they present an impressive and marketable business idea in a proposal. Over three hundred young individuals between the ages of 20 and 35 years have access to sums ranging from N10, 000 to N100, 000. There are many of such types of funding that come in form of research grants and aids. This is an additional option that can be explored to drive a business idea forward.
Remember, it is important for you to learn from the successes and failures of reputable entrepreneurs in financing their businesses. This will help you avoid making financial mistakes and you can benchmark your idea and strategy with theirs, based on the relevant industry and capacity of your venture.
