Starting and running a business successfully in Nigeria is no small feat. With a ‘Doing Business’ ranking of 131 out of 190 countries, and a ‘Starting a Business’ ranking of 105, there are several challenges ranging from the infrastructural to the financial, facing every business owner in the country; added on top of the pressures of serving a dynamic and fickle customer base.
The statistics are grim; as at 2017, a report by the United Nations Industrial Development Organisation (UNIDO’s) Investment and Technology Promotion Office (ITPO) in Nigeria revealed that 80% of companies fail in the first 18 months of operation. This has culminated in an average failure rate of 61% for start-ups in Nigeria (2010 – 2018), for which we were ranked 7th on the continent.
It was with this picture in mind that we decided to ask you – our readers – to send in your questions about the challenges you face in running your businesses in Nigeria. Not surprisingly, and especially from novice business-owners, the most frequently asked question was: “How do I raise capital to fund my business(or idea)?”
Access to capital and credit tops the list of problems faced by businesses on almost every list that has been compiled on the issue of business problems,
which is why we have decided to dedicate this month’s edition of our SME Newsletter to addressing this challenge and listing out ways to solve it.
- Start by bootstrapping: This is pulling in your own personal savings and/or resources to fund your business idea. It should be a no-brainer, but it is often overlooked during planning. It goes without saying that it is easier to convince other investors of the seriousness of your idea if you have someskin in the game. However, if you do not have any personal savings, you may need to work at something else and work at your business on a part-time basis until you get them.
There are also a few practices, such as reinvesting your profits and running on a very lean budget which form part of the bootstrapping process, and they basically entail asking yourself “do I really need this much money?” and then working from there. A lot of the time, the answer is “No” andyou will beable to identify things you can do without.
- Family & friends: You can think of them as “angel investors” if you will, but your social and familial circle can be a potential pool of low-risk funds for your business. You can also take them on as financial partners in your business. “Mommy or Daddy’s money” or the “urgent few k’s ” can be very helpful to your business. If you are savvy enough to structure this in a way that leaves you debt-free, even better. But if it comes in the form of a loan, make sure to spell out the terms of the agreement – ideally in writing – properly.
- Bank loans: Loans from financial institutions are an option worth considering in sourcing finance for your business. Often, this requires you to have collateral and present financial statements. However, here at Wema Bank, SMEs can access financial support without collateral and without a need to provide financial statements, and our loans are one of the most affordable in the market. Should you want to talk to someone about how to access these loans, send an email to SMEhelpdesk@wemabank.com
- Venture capital and angel investors: These are usually targeted at high-growth companies (think Fin-techs) or companies that have already shown either good cashflow, or a measure of profitability. Furthermore, venture capitalists and angel investors generally channel their funds to businesses in particular locations, or sectors, so you will need to carry out some research as to what is available and then plan for the stage in your business when you would like to approach such investors for funding.
- Crowdfunding and Crowdlending: With the rise of social media, and the establishment of platforms such as GoFundMe, there are now boundless possibilities for business-owners to request for and receive funding from large groups of people from all over the world. This usually involves sending a gift (or samples of the product under development) to your donors, but it is a highly scalable and quick means of raising funds, albeit one that is highly dependent on your marketing skills and your online reach.
- Government programs and grants: Government support for businesses, either through fiscal policies or monetary interventions by the CBN have been on the uptick, particularly in the COVID-19 era. As such, avid business-owners should keep an eye and an ear out for information on the available funding programs or have discussions with their Bank on how to take advantage of this. Here at Wema Bank, we have Relationship Managers who are always on hand to answer all questions you may have on this funding option and point out the grants you are eligible for.
- Participate in (and win) contests: There are a number of contests that afford the winners funding for their businesses at all stages of operations. Here at Wema Bank, we have our own Hackaholics program that is open for tech-based business solutions, where they stand a chance of winning up to $10,000 in funding.
Starting a business is no mean feat, but the payoffs of succeeding far outweigh the inconveniences and stress of the early stages. Also, depending on the industry your business is operating in, practices such as factoring, invoice discounting, and moving in with a business accelerator or incubator program can help you see some growth, even without having access to large pools of funds.
[1] 2020 World Bank Doing Business Index
[2] “Only 20% SMEs manage to survive in Nigeria”, The Guardian, 26 May 2017
[3] “Nigeria records 61% start-ups’ failure rate in 9 years”, BusinessDay, 18 March 2020