Innovictor
New Member
Last week on Friday, I wrote the first part on the 5 easiest funding sources for Nigerian SMEs. You'll find the piece here, if you are interested in reading the first part. In that piece, I talked about how SMEs hold immense potential for generating employment opportunities, development of indigenous technology, diversification of economic base and forward-integration with established industries among others.
I also discussed how Nigerian SMEs are having a hard time taking off due to the inaccessibility of business funding. In fact, SMEs have to contend with the dual problems of inadequate funding and lack of information about the limited funding sources.
I then proceeded to discussing how Nigerian SMEs could raise funds from;
1. Personal Savings
2. Friends & Family
3. Government Grants
In this piece, we would explore two additional sources of funding open to Nigerian SMEs.
4. Banks
The fourth easy source of funding to SMEs in Nigeria is from the banks, if you are able to satisfy the requirements for an approval. Banks (commercial, industry or development) naturally offers the least expensive (in term of interests in relation to term of loan) funding for SMEs. Banks generally charge between 5-9% interest for 1-5 years and you can obtain loans as small as N50,000 and as high as N100 million depending on the scope of your business.
However, you should note that bank loans are usually secured; hence, you'll need to provide collateral before you can be considered for a loan approval. Occasionally though, banks might be positively deposed to giving you money in exchange for equity and you might not need a collateral to secure such funding.
Interestingly, many people are skeptical about the possibility of obtaining bank loans because it is usually very hard to qualify for the loan. Nonetheless, banks will be more inclined to listen to you if you have an established business, accurate book of accounts, collateral and can demonstrate upside potential for your business.
Hence, before you approach a bank, you should make sure that your accounting books are in top shape and that you can answer any question asked about the financial status of the business. You should also make sure that you are logical in your projections for breakeven and breakout into profitability. You should also identify your potential risks and enumerate how you plan to mitigate such risks
5. Venture Capital
Another important but relatively unknown source of funding for SMEs is from Venture Capitalists. Venture capitalists are individuals or firms who are comfortable with investing in "high-risk" or "unproven" investments with the hopes of recording colossal return on investments. Hence, if your SME idea is very radical beyond the risk quotient of traditional financiers, you might have better luck by seeking out venture capital from financing firms.
Venture capital often looks hard to come by because venture capitalists are usually interested in businesses with potential to deliver sky-high returns. Hence, unless you are into technology, medicine, biotechs or something unimaginably innovative, you might not be able to obtain venture capital. More so, venture capitalists are only likely to be interested if your businesses have a great probability of being acquired or going public in an IPO.