Starting and running a business is an exciting venture. Every business person wants to make money but a business that lacks funding will struggle to grow.
There is intense competition in the Nigerian business environment and if you don’t have enough funding, you will lose out. If you are wondering how to raise funds for your business in Nigeria, read the following tips and implement them.
What's in this guide?
How to raise funds for your business in Nigeria
Here are ways to raise funds for your business.
1. Save money for the business
Before you start up a business, you need to make a detailed plan for the business and one of the important things in the plans will be how to fund the business. One of the ways you can raise funds for your business is by saving for it.
Take out a portion of your income and save regularly. The volume of funds you need will depend on the type of business that you want to venture into. Some businesses require huge capital while some require little capital to start up.
The frequency of saving is also dependent on the type of business and the size of your income. You can save money daily, weekly, monthly or yearly. Your savings can be done in a bank or a fintech app.
Saving requires discipline and patience to reach your target. Always remember why you are saving and what the money you are saving will help you achieve. This will help you stay focused and avoid the temptation of using the money for unintended purposes.
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2. Take a Business Loan from a financial institution
This is the commonest way of raising funds for your business in Nigeria. All banks offer SME and business loan facilities that business owners and start-ups can access to fund their businesses. Before taking a bank loan, ensure that you do due diligence by researching the institution that can offer you a loan that will best meet your needs.
When taking loans, note the following:
i) Don’t take loans with high-interest rates
ii) Avoid loan sharks. They charge outrageous interest rates and use unconventional methods to get back their money.
iii) Be certain that your business is viable and will generate revenue that will make you able to pay back the loan with interest.
iv) Take a loan that is spread out over the months so that it can be convenient for you to pay back.
The interest rate for loans charged by commercial banks in Nigeria is between 4.5%-7.5% depending on the type of loan.
Aside from taking a loan from banks and other financial institutions, you can also borrow from family and friends.
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3. Access business grants from Organizations and Angel Investors
There are national and international organizations, government agencies, and private individuals that offer business grants. Getting access to these grants is one of the ways that you can use to raise funds for your business in Nigeria.
You need to do findings on the business grants provided by the government and its agencies. Information is very important. Angel investors like the Tony Elumelu Foundation provide funding for start-up owners that enrolls in their yearly program.
To attract grants from Government, International agencies and Angel Investors:
i) You must have a business plan
ii) Your business must be registered with the CAC
ii) Your business idea must be viable
iii) There must be proof that the business is operational
iv) You must be able to pitch your business to investors and convince them that you can scale with funds.
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4. Access funding from Venture capitalists
Venture capitalists are individuals or corporate bodies that invest in businesses to make profits from their investment. As a business owner, you must be willing to share a percentage of the profits ownership stake if you want investments from venture capitalists. This will require meetings, negotiations and the signing of contracts and legal agreements.
If you want to follow this route, ensure that you have a good lawyer/legal team to negotiate a good deal for you.
Also, ensure you understand the agreement fully before signing any document.
5. Crowdfunding
Crowdfunding is raising money from a group of people towards a particular cause or objective. The group is often large and you the business owner would not know all of them. Many business owners are adopting this model nowadays to get funds to expand their businesses. You can follow the same route.
You can crowdfund from your family and/or friends by asking them to invest in your business. Their investments could be without any expectations of you or with an incentive/profit over an agreed period.
Typically you can get funds from the public and pay them monthly interest rates of between 3-5%.
When using this model, take note of the following:
i). Your business must be registered with the Corporate Affairs Commission
ii). You must obtain clearance from the CBN and Efcc to operate as an investment entity.
iii). Don’t promise your clients high and unsustainable interest rates and dividends. You can end up in the loop of robbing Peter to pay Paul. When you fail to pay as at when due, you will be in trouble.
iv). Invest the crowdfunded funds in viable businesses that will yield profits.
v). Be accountable and truthful at all times because you are dealing with public funds.
vi) Crowdfunded funds are not to be used to upgrade your lifestyle and lavished.
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6. Liquidate your assets
When you sell off some of your assets you will raise money to fund your business. If you have valuable assets and properties that can be sold for cash you should sell them. It is a sacrifice you must make for the expansion of your business rather than shutting down because of a paucity of funds.
After the injection of the cash, over time you can make enough profit to buy back or acquire new assets.
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7. Invest in stocks and shares and/or other businesses
You can raise funds by setting aside a percentage of your profits and investing the same in the stock market. This is for start-ups who are already in operation and are making some profits. Buy shares of profitable companies and hold over time. When the value appreciates sizeably, you then sell and invest the money in your business.
Also, look out for other short-term profitable businesses that can give you returns to rechannel to your business.
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8. Take part in business competitions
Certain business competitions are organized with prizes for the winners. Depending on your business line, as a startup, you need to research for information about such competitions.
The competitions are held offline or online and in most cases always involve a demonstration of your business expertise and the winner(s) is determined by votes from the audience or a panel. Such platforms are good opportunities to raise funds for your business.
Startups in Nigeria face the challenge of raising funds for business operations, growth, and expansion but there are options and channels to overcome this challenge. Business owners should use the options that pose less risk for them.
By reading and following the steps outlined in this article, as a business owner, the challenge of how to raise funds for your business in Nigeria will be resolved and you will achieve business success.
