Get a YES! How to raise capital for your business or idea, Episode 2.
Last week, we started a series on how to raise capital for your business. If you missed it, please see this link: http://mrsceonaija.com/2015/04/18/get-a-yes-how-to-raise-capital-for-your-business-or-idea/ . It explains how to get money from investors and how tap into NGOS/competitions/entrepreneurs funds.
This week, we will review 2 more ways to get funds for your business.
Bank loans & overdraft: A loan provided by a bank mostly backed up by some form of collateral. Also, these loans attract interest and bank charges. Currently many banks charge between 18%-20% interest on loans. A bank overdraft on the other hand is a shortage in bank account because the account owner is allowed to withdraw more money than what is available in the account.
As a new business, there are some smart approaches to take loans:
- Be sure your investment of business will generate enough profit to absorb the bank interests & charges. If you bank charges and interest amount to N100,000 per annum , be sure your profit from the business is more than this.
- Get smart collateral: A collateral is any additional form of security which can be used to assure a moneylender or investor that you have a second source of loan repayment. It is the way the creditor protects him/herself. You may not have huge assets such as land, properties to use as collateral for your business. However, you can use some other items such as personal or company shares/stock reports. You can present the purchase orders for the job you are trying to raise capital for. You can use the warehouse inventory or stock of goods you own as collateral. Smart collateral is equipment and tools.
- Have good records: A bank will require your documented financials. They will like to see business records such as your assets statements, your income statements, and your tax evidence. For all these, get an accountant to provide professional advice.
- Get a good banking partner: Walk into a strong bank in Nigeria that supports SMEs and make inquiries. Be sure to compare interest rates, packages and customer service before making a final banking partner selection.
Loans from Peers and family: This may seem like a tough option but it is an option that works for some. Consider approaching close peers and family members with your business funding needs. Of course, this will still require some form of documentation to reassure both parties. Consider drafting a simple agreement that should be signed by both parties that will explain how the money will be paid back, the interests, the terms and conditions.