January is coming to an end, but it’s still a good time to set up a business. One factor that holds many people back is that they worry about financing the business. Well, not to worry we have put together some options (including the pros and cons) you may employ to finance your business.
Bank Loans: bank loans come with extremely high interest rates and a lot of stringent rules, but surprisingly many businesses still turn to it. It seems to work well for businesses with very high turnovers, so they are able to pay back. So if you have a business with high turnover, you can go into taking bank loan, but go into it with your eyes open, and ensure that you understand what you are signing.
Alternative lending: Alternative lenders provide quicker, smaller, more flexible loans through an online application and transfer process. Depending on your credit score, you can be approved for a loan in a matter of minutes and have your money in just a day or two. While having all these options can be great for businesses that may not qualify for a traditional bank loan, it also means you’ll need to be much more diligent about researching potential lenders and their reputations. Just like banks they have very high interest rates like banks. Again, you need to fully understand what you are getting yourself into.
Bootstrapping: this involves funding the business yourself. Taking out of what you have saved to finance the business. This is the safest form of financing and you can grow the businesses slowly. The downside to this is that you are responsible for anything expense that may creep up.
Fund Raising: many businesses have started based on other people’s help, such as angel investors and venture capitalists. Though this may not apply to small businesses because most investors would like to work with a company that has started operating for about 6 months.
Crowdfunding: many people are turning to crowdfunding to solve their personal and business problems. Many people have raised thousands of naira, even millions by getting a large number of people to donate large amounts of money. Usually, this could work for innovations or causes to help save a life, not necessarily a business. There are three trends to watch out for when it comes to crowdfunding:
Niche platforms. Campaigners are moving away from mass-market platforms to those that draw a specific crowd. Niches such as gaming, education, music and sports are all forming their own platforms to better serve both those crowdfunding and those investing.
Smarter investors. Potential investors are no longer as free with their money, just in case another recession hits. Educating these investors should be a high priority for entrepreneurs looking for funding.
Blue-chip crowdfunding. Large blue-chip corporations are learning that crowdfunding is the best medium for authenticating ideas, garnering support and determining demand with very little risk.