Five Sources Of Finance For Growing Your Small Business

Small businesses are the backbone of the Nigerian economy. They account for over 90% of all businesses and employ over 50% of the workforce.

According to a 2019 survey by the World Bank, only about 7% of small businesses in Nigeria have access to credit from formal financial institutions. This is due to a number of factors, including high-interest rates, stringent collateral requirements and a lack of financial literacy on the side of Small Business Owners.

Growing a small business is no easy task, especially in a challenging economic environment like Nigeria. Access to finance remains a major challenge for most small business owners, especially those who are just starting out.

Without adequate funding, it can be difficult to invest in new products and services, expand into new markets, and hire new staff.

It is therefore important to consider the different ways that small businesses in Nigeria can finance their growth. It is also helpful to provide a listing of the major small business development agencies and institutions in Nigeria, including a listing of their major programmes for the financing of small businesses.

If you are considering raising money to finance your small business, it is important that you do your research and compare different options.

Available options include:

1. Bank Loans

Banks are the traditional source of finance for businesses of all sizes. However, banks can be reluctant to lend to small businesses, especially those that are new or have a limited track record. Furthermore, banks in Nigeria often have high-interest rates and stringent collateral requirements. This can make it difficult for small businesses to qualify for loans.

If you need a bank loan, it is important to shop around and compare rates from different banks. You should also make sure that you have a clear understanding of the terms and conditions of the loan before you sign anything.

2. Microfinance Banks

Microfinance banks are specialised financial institutions that provide loans to small businesses and individuals. Microfinance banks typically have more flexible lending requirements than traditional banks.

Microfinance loans are small loans offered to individuals and businesses that may not be able to qualify for traditional bank loans. Microfinance institutions typically have lower interest rates and more flexible collateral requirements than banks.

There are many microfinance institutions in Nigeria that offer loans to small businesses. Some of the popular microfinance institutions include LAPO Microfinance Bank and Accion Microfinance Bank.

3. Angel Investors and Venture Capitalists

Angel investors and venture capitalists are individuals and firms that invest in early-stage businesses with high growth potential.

Angel investors typically invest smaller amounts of money while venture capitalists invest larger amounts of money. They also provide valuable mentorship and support.

If you are looking for angel investors or venture capitalists to invest in your business, you will need to have a strong business plan and a team with a proven track record.

4. Development Finance Institutions

The Nigerian government offers a number of loans to small businesses. These loans are typically offered through government agencies and financial institutions.

To qualify for these government-supported business finance programmes, you will need to submit a business plan, demonstrate that your business is viable and provide collateral.

The major government-related business development agencies and institutions in Nigeria are:

Bank of Industry (BOI): The BOI is a government-owned development bank that provides loans to small, medium, and large enterprises. The BOI Micro, Small and Medium Enterprises (MSME) Fund provides loans to Small and Medium Enterprises at competitive interest rates.

Bank of Agriculture (BOA): The BOA is a government-owned development bank that provides loans to businesses in the agricultural sector. The BOA SME Fund provides loans to Small and Medium Enterprises in the agricultural sector at competitive interest rates.

Development Bank of Nigeria (DBN): The DBN is a public-private partnership development bank that provides loans to Small and Medium Enterprises. The DBN MSME Fund provides loans to Small and Medium Enterprises at competitive interest rates.

Nigerian Export-Import Bank (NEXIM): The NEXIM is a government-owned development bank that provides loans to businesses that are involved in export and import. The NEXIM SME Export Development Fund provides loans to Small and Medium Enterprises that are involved in export.

Small and Medium Enterprises Development Agency of Nigeria (SMEDAN): SMEDAN is a government agency that provides support to small and medium enterprises. The SMEDAN MSME Development Fund provides loans to Small and Medium Enterprises at competitive interest rates.

5. Crowdfunding

Crowdfunding is a way to raise money from a large number of people, typically through online platforms. Crowdfunding can be a good option for small businesses that are looking to raise a relatively small amount of money.

There are a number of crowdfunding platforms that are available to small businesses in Nigeria. Some of the popular crowdfunding platforms include:

NaijaFund
GoGetFunding
Kickstarter

How do you prepare your small business for accessing finance? Your starting point is to ensure that you have the following in place:

Have a well-written business plan: A well-written business plan will help you to articulate your business goals and strategies, and to demonstrate to potential lenders that your business is viable.
Get your business registered: Registering your business will make it easier to access financing from formal lenders.
Build a good credit history: A good credit history will make you more attractive to potential lenders. You can build a good credit history by paying your bills on time and in full.

In choosing the right source of finance for your small business, you must consider the special circumstances and peculiar requirements of your business.

Specifically, you must pay special attention to finding answers to the following questions:

Amount of funding required: How much money do you need to finance your business growth?
Purpose of the funding: What will you use the funding for?
Cost of the funding: What interest rates and fees will you have to pay?
Repayment terms: How long will you have to repay the funding and at what interest rate?
Collateral requirements: What collateral does the lender require?
Application process: How complex and time-consuming is the application process?