How small businesses
raise capital
Babatunde Fajimi
Capital and how to find it in a recessed economy pose a
major challenge to most people who want to own small businesses as
entrepreneurs.
These people are also depressed like the ancient mariner of
the English poet, Samuel Taylor Coleridge, who lamented that “water, water,
everywhere, and all the boards did shrink; water, water, everywhere, nor any
drop to drink.”
Fat cows ate up the
lean
The Asset Management Corporation of Nigeria has said its 400
debtors owe over N4.5 trillion.
Recently, the administration of President Buhari disclosed
that it recovered N78,325,354,631.82, $185,119,584.61, £3,508,355.46 and
€11,250 from looters of public treasury from May 29, 2015 to May 25, 2016. The
funds awaiting return from Switzerland, UK, UAE and USA amounted to
$321,316,726.1, £6,900,000 and €11,826.11.
With such staggering figures floating around in the hands of
few people legitimately or illegitimately, small businesses should have no
problems raising capital which is money or wealth needed to produce goods and
services either through debt or equity.
Where is the money?
International Finance Corporation estimated that 84% of
small and medium-sized enterprises in Africa had limited or zero access to
capital.
The ‘Accelerating Entrepreneurship in Africa’ report by
Omidyar Network and Monitor Group stated that 71% of entrepreneurs considered
raising capital as the biggest handicap.
The report reveals that personal and family loans constitute
45 per cent of the main sources of financing in Africa.
It puts private equity at 19 per cent, bank debt at 18 per
cent, government funding at five per cent, venture capital at five per cent,
angel seed at four per cent and other sources which include corporate funding,
lease/receivables financing or stock options as four per cent.
You may not be alone
Shalom Okunade is a young career woman whose attempts at
starting her small business have been hampered by her inability to raise
capital.
An entrepreneur journalist, Franklin Bayen, listed finding
capital as the toughest hurdle start-up businesses face in Cameroon. He said it
was easier to ascend the Fako Peak on Mount Cameroon than finding investors.
The executive director of Phemzo Integrated Services
Limited, Femi Akindele, said raising capital for his start-up was his baptism
of fire.
The untold story
In spite of entrepreneurs’ experiences in small business,
experts argue that finding money for start-ups and growing the business should
not be a mission to find a needle in the haystack if entrepreneurs can focus on
the end of the tunnel.
A US-based certified public accountant, Koyejo Arulogun,
said people should stop using money as an excuse for not becoming an
entrepreneur.
Accelerating Entrepreneurship in Africa report opined that
financiers and investors claimed many of the new ventures and small businesses
were simply not fundable. It attributed the lack of fundable business plans to
quality and feasibility of the business idea as well as the commitment of the
entrepreneur and the team to success.
A consummate scholar and entrepreneur, Richard Ikiebe,
pointed out that if entrepreneurs could think and come up with ideas for
business, they should also be able to think of ways to attract money to fund
the ideas. The two are intertwined and not independent activities.
“Money is not going to show up simply because you have a
business idea. You have to devise a strategy to raise money to fund your dream.
If you are a smart person who can think, you will know where to find the
money,” he said.
Ikiebe added that entrepreneurs which succeed at finding
money are those with originality of idea, bankable business plan and persuasive
presentation to convince investors and the market about their value
propositions.
Arulogun wanted entrepreneurs to have skin in the game.
Investors want to see how committed the entrepreneurs are, how much of
themselves (personal investment or equity) have been invested in the business
and what little wins have been secured before staking their funds.
Serious-minded entrepreneurs should de-emphasise seeking
hundred per cent loans for raising money for their start-ups, and certainly not
from banks. Experts suggested that bank loans were not tailored for start-ups
and small businesses. Banks see such investments as high risk, low reward.
Entrepreneurs must create self-belief in their ventures.
Arulogun argued that if a person cannot sell his car to raise funds, move to a
smaller house to conserve funds or become creative with his cash flow to start
up a business, it may be difficult to persuade an investor to put down money
into such business.
He said that the problem of capital can be solved with small
steps. Capital is not raised in a day. Entrepreneurs can start small, raise
capital and recoup that first. They can test the market and make small mistakes
before thinking of raising large funds. Investors disburse capital in tranches
when they see progress.
If borrowing is an option, entrepreneurs should avoid high
interest rate so that they will not perpetually be working for the lender. They
can find resources from those that believe them such as family, friends and
colleagues. They should be committed and seek for partners because it is
difficult to go it alone.
Source: The Punch Newspaper
