7 Sources of Income and Financing for Small Businesses in Nigeria


7 Sources of Income and Financing for Small Businesses in Nigeria

A source of capital is essential for any business, an important part of building and sustaining any business for maximum growth and profitability. This is one of the unique business problems that many entrepreneurs face. Fortunately, there are many sources of capital and financing available for small businesses, especially in Nigeria.

Given the high interest rates charged by Nigerian banks, business owners - start-ups and small businesses - find it difficult to get the necessary funds to start their business, especially in Nigeria. Fundraising doesn't have to be a chore.

However, many business owners seem to be stuck because they think they can't get the money. It is important to understand the basics of fundraising, as it can mean the difference between successful entrepreneurs and those who are not.

In other words, it can be the key to the success of your business. At this point, it would be wise to let you know that not all types of financing are good for your business.

Therefore, it is important to understand the flexibility of the different types and sources of income available to you as a business owner in Nigeria; the impact they have on your business, the expectations of investors, etc. When you are looking for money, some steps are necessary to attract the kind of money you need and, more importantly, to get it from the right place.

In this article, we have listed different ways to get money, the section for applying for help from about 1.5 million naira and up to tens of millions.

Here is an overview of the seven most common sources for small businesses

It is not advisable to have a single source of income, regardless of the business plan that you want to do. This is especially true when it comes to promoting your new business. The list below provides sources of funding for businesses, especially startups.

 • Personal Investment

As an entrepreneur, one of the first ways to show confidence in your ideas is to invest time and money in them. It is one of the first things that other investors, friends and family give your business in determining their opportunity to invest in you and your business. It usually means your level or lack of commitment. When considering financing your own business, consider the following channels as sources of income for small businesses: 

 • Personal Safety

Money from your piggy bank is one of the easiest ways to support a small business. Using your own money is not only attractive, but it also shows potential investors your status in the company. This can be very helpful in getting extra money from other people; Self-defense is one of the most important sources of income for small businesses today.

·   • Credit Agreement

Financing is a form of financing that allows businesses to spread the value of a particular asset over time. The lender agrees to purchase the equipment for the direct business in exchange for a down payment, usually 10% of the purchase price. The contractor will repay the remaining value of the asset in installments with the final payment at the end of the lease period. After this final payment, the contractor becomes the owner of the property.

HP is a useful form of financing for businesses that don't have enough cash for their needs. You must pay the value at the date of purchase over time, even if the price goes down.

The purchase agreement property appears as an asset on your balance sheet during the term of the loan and the purchase price is shown as a liability, less any HP payments that have been made.

For this reason, it is worth considering whether you will need the property for a long time - if not, it may be more expensive to rent. Repayment options for purchases vary widely in terms of amount and frequency.


·    • Sell Personal Assets

You can sell your stocks, real estate, bonds, and other assets to raise money to support your business. Selling assets for cash is a proven way to raise money, but there can be tax implications associated with selling certain assets, especially real estate and stocks. Be sure to keep this in mind.

·    • Family and Friends

Family and friends have proven over time to be a smart line of help for small business owners, especially when you don't have the track record to convince a bank to lend you money. Family members and friends are easier to convince than bankers. Also, they are less likely to ask for hard terms and high interest rates or may not disclose interest rates.

A 2015 study by Pepperdine University found that 68% of small business respondents supported their business through the support of friends and family. It is important to know that asking for money from family and friends comes with its own set of risks. Your relationship may suffer if the business fails or if loan repayments seem to be slower than expected.


·    • Crowdfunding

Crowdfunding is another popular way to raise money. it is based on the process of generating small investments from a large number of sources. It is believed that it is easier to collect a small amount of money from many people than to collect a large amount of money from a few people. There are different types of crowdfunding: donation crowdfunding, reward crowdfunding, debt settlement, and equity crowdfunding.

Crowd donation includes sites like GoFundMe, Indiegogo where individuals donate without any guarantee of return on the money. Donors contribute with the idea of ​​supporting a good cause, an organization that they believe in or that they share values ​​with.

Remuneration-based pooling gives you something similar or profitable and flexible for the investment. An example of this type of crowdfunding is Kickstarter.

To get the best results from using reward-based crowdfunding, it's important to set fundraising goals by determining how much money you expect to bring in from your fundraising campaign. Create a reward system, an incentive in which you plan to reward donors for their contributions.

In equity, investors give money to business owners in exchange for a percentage of the business; then after the window of time, the company repays the investors with interest and returns. Most of the time, investors get returns or rewards and interest within a fixed period of time.

If you are a startup, equity crowdfunding is a good solution because it gives you the opportunity to get more money from different investors than you would with other financial opportunities. This, in fact, is one of the main sources of financing for small businesses, all over the world.


·    • Government Empowerment Programs

Governments at various levels launch business empowerment programs from time to time to train and provide start-up tools to entrepreneurs. Sometimes, the government also gives grants to existing small businesses. Just be careful about such government programs to get, if it is good and choose it.


·   • Angel Investing

Angel Investing involves seeking money from a wealthy individual who wants to help a business grow and expand. These investors fund the initial coin, the company gives them a share of equity in return. It is believed that when the company is making a profit, investors can sell their shares at a profit. Also, many angel investors often give more money than money. Most of them are business owners; in addition to money, they often share their skills, which can go a long way in defining the long-term success of the business.


·    • Venture Capital

Venture capitalists invest directly in young businesses in exchange for a stake in the business. Most investors who invest money are joint venture investors, and they usually choose and usually invest in companies that are established and have a reputation for creating value.

Investors invest in a company with the goal of cashing in on their shares if the company eventually goes through an initial public offering (IPO) or is sold to a larger company.  To get capital, the first step is to submit a business plan to an investor or angel investor.

If you are interested in the plan, the company or the investor will carefully analyze the business model, product, management of the company, among other critical factors. Investors tend to invest large amounts in just a few companies. Oftentimes, venture capitalists also focus on one company. A business investor who specializes in agriculture, for example, may have previous experience as an agricultural analyst.


·    Business Incubators

Incubators support startups that are still in the early stages of building their businesses. Many startups have ideas that can change the market, but there is no business model that takes it from new ideas to reality.

Developers are exactly what their name suggests, entrepreneurs run, government agencies, responsible for creating new businesses and their startups by helping with marketing, communicating in 'Internet, resources and money.

Incubators work on an open schedule. They focus on the longevity of the business rather than the speed of growth of the business. Developers don't give money to startups, and economic development organizations support it. Also, they often don't hold hands with the companies they support.

A co-creator is a shining example of an incubator.

Developers invest time and resources in developing local startups; they are often tasked with creating jobs or finding ways to grow the business.

But they have less pressure to create a startup that can grow quickly because promoting and supporting local startups is part of their mandate. Therefore, even companies that is growing fast or is not able to still attract a good incubator.

To be part of the incubator program, a potential business owner must have a lengthy application process. The requirements are different between different incubators, but the entrepreneur must demonstrate high potential for success.


Sources of Funding Available for Startups in Nigeria

Here are the top players in the Nigerian business community who have contributed too many startups in recent years:

1.  Tony Elumelu Foundation (TEF)

This business program is supported by a $100 million investment from the Tony Elumelu Foundation to empower 10,000 African entrepreneurs over ten years. The goal is to create at least one million jobs and add more than $10 billion in revenue to the African economy.

Through its flagship business program, the Foundation empowers African entrepreneurs and business ecosystems in 54 African countries. The Foundation has empowered 7,531 entrepreneurs, by awarding small business grants to qualified entrepreneurs.

It is clearly the main source of income for small businesses in Nigeria.


2.  African Development Bank

The Nigeria Trust Fund (NTF) was established in 1976 through an agreement between a group of banks and the Nigerian government. DSF is an independent variable fund. Its objective is to support the development efforts of the Bank's low-income regional member countries whose economic and social conditions require financial support. Its original capital of $80 million was replenished with $71 million in 1981.

In 2008, the Federal Republic of Nigeria and the Bank Group agreed to extend the NTF for ten years. DTF resources can manage AfDB and ADF joint financing, as well as vertical financing operations, in the public and private sectors. Other loans may be considered for projects approved by the Bank Group.


3. Bank of Industry (BOI)

Bank of Industry (BOI) is one of the leading financial institutions in Nigeria and provides long-term support to various companies in various sectors of the economy. With the vision of providing financial support for the development of small, small, medium and large companies, BOI focuses on companies that work in manufacturing, processing, oil and gas, information technology, among others.

It is the largest and oldest financial institution in the country.


4. African Women Development Fund (AWDF)

It is a grant-making foundation that supports local, national and regional women's organizations working to support African women and promote and realize their potential. Their mission is to support and support the work of African women's organizations. By raising the voices and achievements of African women, AWDF supports efforts that counter stereotypes and promote African women as agents of change.


5. Lagos State Employment Trust Fund (LSETF)

The trust supports micro and small enterprises (SMEs) with ₦25 billion. The fund is divided into two categories: small businesses and small businesses or small businesses. Businesses of this type can get loans of up to ₦500,000 with an interest rate of five percent for one year - this is key to supporting young businesses. 

Companies in the small business category can receive up to ₦5 million for three years. The process to get the money includes: joining a business organization that will approve the business for the loan, Lagos state tax receipt for at least six months and Lagos resident card. To date, approximately 8,000 transactions have received over ₦6 billion from the LSETF.


6. Central Bank of Nigeria Anchor Borrowers Programme

The Central Bank of Nigeria, through its Borrower Anchor Program and other anchor programs, provides loans to entrepreneurs, especially in the agricultural and manufacturing sectors.


7. Development Bank of Nigeria

The Development Bank of Nigeria (DBN) is a bank owned by the federal government of Nigeria and commissioned to address the financial problems faced by Micro, Small and Medium Enterprises (MSMEs). DBN was launched on March 23, 2015.

The Federal Government established the DBN to ensure that Nigerians fully utilize their creativity. Although young people complain (time and time) about the unemployment rate and the lack of opportunities, the federal government has listened to these calls by creating this way for creativity. The plan is to increase the investment of young and old people with limited opportunities in turning their dreams into reality.

Basically, "you have a dream - submit it to DBN". Flexible DBN loan repayment plan. This policy lasts for approximately 10 years, with a grace period of up to 18 months. In addition, the interest rate is fully on a variable basis. Hence, this makes taking a loan from DBN the best loan option for Nigerian entrepreneurs.

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