Categories Family Finance

Overcoming The Capital Odds In Business

A casual visit to the entrepreneurial cemetery will reveal the skeletons of many ideas that met their sudden death due to lack of capital to keep them alive. Truly, entrepreneurs globally are confronted with the same problem: How to get their dream ideas to the market place or how to expand it after it get there.

This problem has caged many would-be-entrepreneurs to their nine-to-five jobs with the hope that someday they will be able to get their dream ideas off the ground.

But don’t allow lack of capital to hold you back from venturing into entrepreneurship. If you have a reasonably sound business plan and sufficient commitment to your plan as well as the determination and patience, you will eventually obtain the funds you need to make it happen.

Lest we forget, the capital requirements of an enterprise consist of two main types: working capital and fixed capital.

Working capital is the fund deployed for the day-to-day operations of the firm whereas fixed capital is the fund invested in fixed assets to be used over a long period of time e.g. building, fixtures, equipment, machinery and land etc.

And both of them could be raised from either equity or debt financing. Equity funding usually does not attracts interests e.g. personal savings, grants, dash, proceeds from sales of personal assets, equity shares etc. On the other hand debt financing are usually borrowed funds that come with interest e.g. Bank loans etc.

Very often entrepreneurs hardly raise enough equity funds to execute their business ideas so they normally resort to borrowed funds to bridge the gap.

There are three types of loans/credits facilities which arise from what is to be done with such loans/credits to meet the specific needs of the borrower viz:


This has a duration period of one year. It’s particularly suited for trade finance, trade credit, supplier credit, and local purchase order (L.P.O) financing, deposits against future supplies, over drafts etc.


This has a duration period of more than one year but less than seven years. It’s is best suited for Bank-term loans, venture capital, project finance, bank acceptance (acceptance credit), commercial papers, hire purchase, equipment /car leasing, mortgage of property.


This includes all types of equity capital e.g. equity shares etc. debenture stock, convertible debenture stock, preference shares etc. It is especially suited for fixed assets e.g. building, machinery and land etc.

However, in your quest to secure borrowed funds, it is pertinent to know that there are standards criteria lenders deploys to evaluate loan requisition – Known as the 5cs of credit. Which are?


This usually has to do with the knowledge of the business and the owner: What sort of person is he/ she? is he/ she reliable? will he/ she pay-back the loan willingly? does he/ she have a track record of paying back loan?


Does the business have the capacity to generate enough cash flow to repay the loan? The answer to this question is usually provided in your business plan where you show your revenue and profit projections but note that if it looks too good to be true then you are not likely to get funds from lenders


How liquid is the lender at the time of application? If the loan is granted will it exceed the lender credit line? What is the nature of the business?-is it a growth area or is it an area loaded with cut throat competition?


It is a security in case of business failure that lenders will fall back on. Is it adequate?


What is your net worth? What assets do you have that is bankable? What is your status in the society? How much of your money have you invested in the business?

Yes, when writing a loan proposal you should address each of these criteria. They may, however, not count for the final outcome of whether or not you are granted the loan. But it often pays to put the lender’s mind at rest on each of them.

Okay! With the information you’ve just received about what lenders want, you are set to be acquainted with the sources of raising finance for your business idea.


There are various sources of raising finance for your business idea. Let’s consider some of them:

PERSONAL FINANCE (Equity funding)

This is usually personal funds raised for your savings or from proceeds of the sales of your personal assets e.g. Cars, shares, real estate etc. It is called equity fund which often may serve as an incentive to attract lenders to advance you loan.


If you are fortunate to have net worth relative/friends who believes in you and are interested to assist you to execute your business idea then you are in luck. This is because funds from these sources usually don’t come with conditions like the commercial banks. But it is advisable to write out an appropriate agreement on how the loan will be paid and to define his or her status in the business. That way you will avoid putting a strain in the relationship.


Very often they are not a reliable source to seek for start up loan for small and medium enterprise entrepreneurs.

However, if you can provide adequate collateral or show strong evidence of the viability of your business idea to pay back the loan with interest or you can produce a guarantor that will guarantee you then your loan requisition may be granted.

Commercial banks are more interested in short term loans/credits facilities to their customers such as trade finance, L.P.O financing, over draft etc.


These are organisations that are engaged in leasing out machinery/equipments to business owners for a fee i.e. rent age. The terms and conditions for leasing contract vary so you have to opt for the most appropriate for your purpose.

The beauty of leasing as a source of financing business is that it enables business owners to access machinery/equipments that they cannot afford to buy. Also it frees the capital that the business owner has for other pressing needs.


They are net worth individuals with huge amount of funds to invest who are seeking for lucrative business ideas to invest in for interest or percentage of shares of the firm.

They are usually individuals we have cordial relationship with such as friends, family members, mentors and previous business partners or associates. Some of them may want to be involved in the management of the business to lend their wealth of experience and contacts to enhance the success of the business.


Venture capitalists are investment specialists who are in control of large pool of funds from a range of sources. They can invest in new, even high risk or speculative business without proven track record with the potentials for fast growth and high returns within short time (3-7 years).

They often request for equity or part ownership as well as an involvement in the management of the business in exchange for substantial returns. Quite often, they will need a bankable business plan that clearly demonstrates how you will achieve your business dream to access funds from them.

However, most start up businesses does not really need the involvement of venture capitalist due to the smallness of their required capital outlay.


These is a group of people that have decided to come together with a shared aim or purpose. They usually assist their members to raise fund to start up or expand their business.

Their modus operandi involves each member contributing an agreed amount of money monthly and after three or more months of contribution, the member will be qualified to take a loan which is returnable within a year or more with low interest rate.

It is possible to borrow more money than your contribution. Again it is easy for cooperative societies to access loan from government agencies or banks for their members to start up or expand their business. But you must be a committed contributing member of the cooperative society before you can enjoy these benefits.


This is an alternative source of finance for micro and small scale business owners to start up or expand their enterprise. But you need to fulfill certain condition to facilitate the process of getting loans from them. E.g. you are requested to open an account with them which you will operate for three or more month for them to consider your loan requisition. Also you need to produce a guarantor.


An easy way to get interest free funds for your business idea is to join a group contribution.

However, it is best suited for those with regular income because each participants is required to contribute an agreed amount of money at specified interval and give to each member in turn, when each member has collected, the process is repeated again and again.

Most people take to it because they want to raise money for some projects e.g. renting and accommodation, purchasing car, land etc. In like manner you can raise money for your business idea.

It is possible to negotiate to be among the first three persons to collect so you can raise funds to start up or expand your business and proceeds from the business could be deployed for the instrumental payment for the contribution.


A great way to partially finance a business is through trade credit facilities granted to the business owner by suppliers. But this does not come cheaply!

The business owner must have displayed the capacity to be credit worthy in his or her past business relationship with the supplier or the supplier just takes to liking of him or her to get a trade credit favour.

A easy and unconventional way to raise finance for your business idea is to advertise in a news paper or magazine particularly those focused on businesses. Your advert should state the amount of money you need but always ask for more money than you need so you can create room for negotiation.

Also the advert should state the nature of the business and the expected returns you are promising on the investment. And do you know what!  You may be surprised of the amount of response you might get.


This is an instrument you can employ to get loan from your bank by using it as collateral. You can also use it to raise short term credit from the insurance company that is you can borrow against the cash value of your life insurance.


Agencies like International Finance Corporation (IFC) and ECOWAS provides credit lines for enterprises.  Entrepreneurs can benefit from such organizations particularly if they are members of relevant association such as the Association of Small and Medium Enterprise (SMES) which can assist to secure loans from such organ


There are agencies set up by government that make funds available to SMES to implement government policy aimed at stimulating the economic growth of the country.

Among such agencies are: National Directorate of Employment (NDE), National Poverty Eradication Programme (NAPEP), Bank of Industry (BOI), Bank of Agriculture and Rural Development etc.

Also there are programmes of the federal government that tends to encourage entrepreneurial youths and women to execute their business idea through grants, and soft loans e.g. YOUWIN, SURE-P empowerment programmes etc. There is the need for you to approach any of these agencies to enquire on how you can benefit from these programmes.


For some entrepreneurs, this is usually the last resort to source for capital to finance their business ideas. But taking this route requires prayer to be able to identify individuals that shares your vision and can conveniently work with you to sustain the business.

Yes! It is advisable to hammer out an agreement with your partners that spell out the terms and conditions of the partnership before the commencement of the business.


This is a great source to seek for equity funding for your business. But you must be enlisted with the Nigerian stock exchange. The best way to go about it is through the security exchange commission (SEC) after fulfilling all the requirements for enlistment.

However, this financing window is open only to those that have grown their business to a certain level that requires equity funding for expansion. Small and medium enterprises (SMES) can benefit from it through the second tier platform.


Nigeria has economic pact witch some foreign governments in which some render assistance to existing or start up entrepreneurs. This source can be accessed through the commercial department of some of the embassies in Nigeria.Finally, remember that sourcing for funds for business is a continuous endeavor, thus it demands your constant seeking for information about happenings in the financial sector so that your business can benefit from the opportunities available.

I guess you are now well prepared for the challenges of raising funds for your business ideas and know where to go looking for it.


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