In our first lesson in this series, we looked at how to start a small business and a list of 10 steps to get started on the track with your small business. In today’s lesson, we are going to look at funding options for a small business.
When establishing a small business, one is faced with numerous challenges. A major aspect to consider when starting a business is financing. Thinking about where the funds will come from can be very worrisome.
It is indeed an obvious obstacle every new business owner must overcome, and one, that often serves as a stumbling block to many people who wish to start their own small business.
For many people, the first step they take when attempting to start their own small business is seeking bank loans. But the procedure is usually not easy for start ups as the banks could become demanding for things like collateral and business plans. Banking institution do tend to make things hard for people trying to start their small business. The thought of putting up one’s home for collateral and the demand for personal assets can be scary and stressful at the same time.
This reminds me of the numerous times I’ve gone to several banks in my earlier days in business to seek out loan. I simply couldn’t meet their endless demands. I never got any loan from all of them.
If you somehow meet their demand for the loan, they can also demand that you actually rent your business space rather than purchasing the space. They do these because they don’t want their money to be tied up in assets that the bank believes will not offer any short-term rewards. Keep in mind that bank loans come with interest charges that increases the amount that is to be repaid.
There are numerous grants opportunities available for small business owners. Applying for these grants whether government or private grants is something I recommend people who are interested in starting their own business. The Nigerian government, non-governmental organizations and other countries have numerous programs that support small business owners in many ways.
Make sure to check up not only the federal government’s programs but your local and state governments as well as private organizations for possible grants that could support your business venture.
Applying for grants could be an arduous task, but it is worth the effort because you do not need to pay back the money given you.
Some grants programs you can try out are Tony Elumelu Foundation Entrepreneurship Program. This is available to African Entrepreneurs only. The competition for the grant runs every year from 1st January through 1st March. If successful, you go through a 12 week intensive business training and receive a grant of $5000. Others are D-prize where you can receive up to $20000 (you can submit your application on or before June 2, 2019, another grant program is GIST Network, Unilever Young Entrepreneur’s Program this program is ongoing and gives up to 50000 Euros for the winner. Try it out. The last I want to share with you is Echoing Green Fellowship. There are many more.
Relatives and Friends
You may be reluctant to ask relatives and friends to lend you money to start your own small business, but at times this may be a good option because they are for sure people who know and trust you. The only downside with borrowing money from relatives and friends is that they could feel that they are stakeholders in your business. Therefore you need to keep the terms clear to them right from the beginning.
This kind of loan usually has no legal binding but has the tendencies to create rift between the business owner and his/her loved ones. It is therefore very important to point out to them that the money is a loan which is going to be paid back and that it gives them no share or say in your new business.
Another way to fund your small business is through making use of your own personal funds that you saved over time. It is typically used with a combination of other sources. The good thing about this source of business funding is that you wouldn’t be confronted with personal conflicts and interest charges that other loans may demand.
Private Donations and Investors
Another option worth considering is accepting private donation or seeking out investors. If you have a great new idea you feel is good for a new small business, it is possible to sell the new great idea to potential investors; they are commonly referred to as venture capitalists.
This method will involve the investor having a stake in your business unlike taking loans from your family members. The disadvantage of this source of funding is that your idea has to be potentially profitable and creative because you literally have to convince investors that you will make money with your new small business.
Most often than not, a controlling interest in your company will be given if the investor has to spend their money for you to start your own small business. Therefore, you must be prepared to share to some extent the control of your business.
These are some of the many ways there are to fund your small business. Whichever of the ways you decide to use to fund your small business, it is very important that you do some research and be prepared to tackle any challenges that may get in your way to your business success.
We’ve come to the end of our second lesson on how to start your own small business which talked about funding options for a small business. I hope you enjoyed it and found it beneficial. As usual feel free to ask questions about areas that aren’t clear to you. I also welcome your comments about the points I talked about in my writing.
Expect another lesson from me soon! We will be looking at how to create a professional business plan for a small business.
I appreciate your interest in this short course. Talk to you soon!