LOANS 101: 5 WAYS TO SECURE FUNDING FOR YOUR BUSINESS

Secure Funding for your business

Eureka! You have a million-dollar idea that you are confident will be the next big thing. What next? Financing! How do you secure funding for your business?

For your business to take off, it will need some funding. Whether it’s a revolutionary app, game-changing product, world-altering service, or a simple business to serve your community.

Having done your research and estimated the cost to start or scale up your business, you are now looking for ways to fund the big vision. This article will look at some of the known ways to seek funding in Kenya for your business.

1.      Bootstrapping

Bootstrapping in simple terms is when you start your business with personal finances and do not rely on outside investment. This means that you bring together all your money and resources that can be cashed out to secure funds for your business. It may be your savings accounts, credit cards, or liquidating some of your assets.

This is a great concept for small businesses and entrepreneurs who want to start small and scale up gradually without owing anyone. This model can also be great for new companies as it is simple and flexible which is perfect for the early growth phase of the business.

As good as it sounds to be a sole proprietor, literally, bootstrapping has worked for some but has taken a turn for worse for others. It comes with lots of stress, cash flow problems, and even the risk of failure. Entrepreneurs who have succeeded with this model emphasize the need of the entrepreneurs to be self-disciplined, passionate, relentless, and enthusiastic for the success of the business.

Guess what business started with bootstrapping? Microsoft. Founded in 1975, Paul Gates and Paul G. Allen developed software for the first microcomputers. After founding Microsoft, the two went on to join forces and bring resources together to work with other major corporations, including IBM. Microsoft now is worth 1.96 trillion, in numbers it is USD 1,960,000,000,000. Those are lots of zeros!!

2.      Friends and family

This is simply getting your family together and requesting them to help you raise funds for your business. This model has had different reception from different entrepreneurs.

Think about it. How will your close friends and family members react if you ask them for financial support to start or grow your business? What are your thoughts? Is it Nah! I can find an alternative. Or will they be fully onboard? If your answer is the latter, then good for you.

Business plan to secure funding for your business

Getting those closest to you onboard to support your goals is usually a good step before considering getting external support. Think about that aunt who used to give you extra pocket money when you visited her. Well, she might not fund the whole business per se, but this is where pooling funds together from different friends and family comes in handy.

Developing a clear business plan is crucial when asking your friends and family for funding. Your business plan should consist of what you are selling, how you are selling it, and how you will make money. Be clear about how they are coming in (whether they are investing, loaning you money, or if you are just asking for a gift).

It is a quick funding process with flexible terms depending on the agreement with everyone involved. As sweet as it may be, it is also risky to mix business with friends and family. If anything goes wrong, God forbid, your relationship with the members involved might be at risk.

An example of a business that is successful as a result of this model of funding is GoPro. With an urge to film his daring surfing moves so that they can “go pro” in surfing, Nick Woodman was motivated in 2002 to have a camera that will capture his skills up close. He raised the initial capital by selling bead and shell belts for under US$20 from his van and camera straps. He later received $230,00 from his parents to invest in his business. GoPro is now worth 942.20 million USD and recorded a revenue of 1.16 billion USD in 2021.

3.      Angel Investors

As the name suggests, Angel Investors are God-sent wealthy individuals who have a keen interest to invest in promising startups. They are a good option if you will need more capital than bootstrapping and the friends and family method can raise.

Angel investors not only invest in your business, but they also help you grow by mentoring you. They also introduce you to other people, creating opportunities for you to expand.

Kenyan business owners can pitch their ideas to angel investors on platforms like Angel Investment Network.

4.      Venture capitalist

Now here, we are talking about some serious funding. They invest more than an angel investor would in exchange for equity in the business. When venture capitalists invest in a business, they’re looking for potential and intend to make it grow quickly so they can get their returns quickly.

It is important to know that oftentimes, Venture Capitalists seek out businesses and companies that already use technology and have high potential growth in areas such as information technology, communications, biotechnology, and fintech.

If your business is the type that a venture capitalist would invest in, and you’re willing to give up equity, then they’re your best bet for quick growth.

5.      Take out a loan

A bank is usually the first option entrepreneurs think of when they need funding because a bank can offer different types of loans depending on the person’s needs and credit score. But some people can’t get a loan from a bank because their credit score is too low, that’s where Microfinance providers come in.

Loan Agreement, secure funding for your business
Loan Agreement secure funding for your business

Microfinance gives access to financial services to those who might not have access to conventional banking services. Microfinance is becoming the go-to for those who do not meet the requirements that are set by banks such as a good credit score.

Organizations such as Ngao Credit pride themselves as banks for the underserved enabling small businesses to scale up and expand with minimal paperwork and quick turnaround time after application.

As simple as the loan application and approval might sound you still need to ensure that you have a viable plan for fund expenditure and generation.

Conclusion

You will likely need outside sources of capital if you want to grow quickly. If you do not have access to financial resources, you may not be able to tap into market opportunities.

There is no shortage of lending options to get started, but responsible business owners should ask themselves how much financial assistance they need. Some business owners find themselves in a ditch a couple of months after borrowing.

To have a long-lasting business, read this article on the top mistakes that business owners make when seeking funding and how to avoid them.

What financing option would you choose and why? Let us know in the comment section.

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