+Add to UC RSS Go to Blogger Search this blog More Next Blog» Create Blog Sign In pragmatic Saturday, July 31, 2010 how to easily raise capital in Nigeria-with or without collateral How to Easily Raise Capital in Nigeria – With or Without Collatera …Providing Nigerians with money making information. Page0 How to Easily Raise Capital in Nigeria - With or Without Collateral. Iroegbu Ikechukwu P.N. BusinessGuidesNigeria © 2008 BusinessGuidesNigeria. How to Easily Raise Capital in Nigeria – With or Without Collateral. BusinessGuidesNigeria …Providing Nigerians with money making information. Page1 Table of Contents Part 1: The Basics. 1. Capital the life of your business. 2. The Importance of a sound Business plan. 3. Getting the Money-Hunting Edge. Part 2: Ways of Raising Capital. 4. Personal Savings. 5. Getting Your Hands Dirty. 6. Other People’s Money (OPM)/Trade Advance. 7. Bank Loans. 8. Small Personal Loans. 9. Selling off Your Luxury Assets. 10. Group Collection (Isusu). 11. Partnerships. 12. Private Equity Placement. 13. Economic Opportunity Loans. 14. Angel Financing. 15. Cashing in Your Life Insurance. 16. Bank Overdrafts. 17. Leasing. 18. Bartering. 19. Joint Ventures. 20. Hire/Purchase. 21. Going Public. 22. Selling Information. 23. Multinationals. 24. Minimize Your Start-up Costs. 25. Mistakes That Kill Startups. 26. Other BORIGCOMM Products that will help you. 27. Appendix: List of Micro Finance Banks in Nigeria (700+) [in CD]. How to Easily Raise Capital in Nigeria – With or Without Collateral. BusinessGuidesNigeria …Providing Nigerians with money making information. Page2 NAPEP Contact Persons in Nigeria [in CD]. SMEEIS Guidelines [in CD]. Sectorial Distribution of SMEISS investments [in CD]. Geographical Distribution of SMEISS Investments [in CD]. BONUSES [in CD]. How to Easily Raise Capital in Nigeria – With or Without Collateral. BusinessGuidesNigeria …Providing Nigerians with money making information. Page3 Part 1: The Basics How to Easily Raise Capital in Nigeria – With or Without Collateral. BusinessGuidesNigeria …Providing Nigerians with money making information. Page4 Chapter 1 Capital the life of your business On the premise, very few business endeavors can be started without capital. The only exceptions are some service based businesses which only require the expenditure of physical effort. Capital is unarguably the life-stream of your business. With it you can; purchase equipment, employ and pay staff salaries, rent business offices, run advertisements, etc. Most probably, it is capital that is keeping those brilliant ideas of yours from taking form, or holding back your business from its much needed expansion. However, with the different means of raising capital which I am going to teach you. Your nightmares, headaches and pains associated with sourcing & acquiring capital for your business will be turned into bliss. I am going to show you proven methods you can easily use to raise capital for your business – right here in Nigeria. Shall we begin? How to Easily Raise Capital in Nigeria – With or Without Collateral. BusinessGuidesNigeria …Providing Nigerians with money making information. Page5 Chapter 2 The Importance of a sound Business plan Since you are going to approach either individuals or corporate establishments for capital, we cannot overstate the importance of a sound business plan. The factors that make your business plan sound include: a. Is it simple to (read through and) understand? b. Is it feasible? Can it be achieved? c. What are the risks involved? d. What are the potential returns (profits)? e. How long will the returns take to come in? f. Who are you? What related experiences do you posses? Which experienced people (in your area of business) are behind you? Your business plan tells your prospective partner/investor exactly what the money you need will be used for. It also shows how soon they expect to get their money back. Your income projection, target market, competition, etc. Furthermore, a business plan strongly helps you keep track of your targets, objectives and serves as a gauge to measure your progress over time. How to Easily Raise Capital in Nigeria – With or Without Collateral. BusinessGuidesNigeria …Providing Nigerians with money making information. Page6 Chapter 3 Getting the Money-Hunting Edge In your quest to access funding for your business or idea, there are certain basic attributes that will make your work easier. To qualify for other people to entrust their hard earned money to you as capital, there are several qualities/attributes you must possess. These attributes and qualities make your ability to secure capital much, much easier. They will literarily guarantee your success. These golden attributes/qualities include: 1. Expertise: How knowledgeable are you in the area in question? Do you completely understand the business/industry you are about going into; and its inherent challenges? As a rule of thumb, your chances of raising capital for a venture you are unfamiliar with is as much as nil if you do not already understand what you are going into. The chances are that you are going to waste the capital on costly mistakes. 2. Reputation: Do you have a reputation for integrity? Do you have a record for keep your word? Will you repay the money you are given when the time is due or will you wait until you are taken to court? If you are honesty, reliable and constant your chances of raising capital will be greatly enhanced. 3. Management: This is a very important factor that will determine how easily you can get access to capital. The person/persons providing you with funds will want to know beforehand; who are the brains behind your business? Who are the people in your management team? What related experience do they possess? Of course if your business is engaged in football clothing, it might not do you much good having someone from the food & beverage industry on your team. The people that will add the most credibility to your business are people engaged in or who have previously engaged in the same business – and have acquired some related experience. Furthermore, you might not have enough cash to attract the right kind of people into your team. However, this should in no way be a deterrent. How to Easily Raise Capital in Nigeria – With or Without Collateral. BusinessGuidesNigeria …Providing Nigerians with money making information. Page7 Assuming you want to get someone like Pat. Utomi on your team but you cannot spare any cash at that moment. What options do you have besides say paying him upfront? Simple, you can offer the person some equity in your business. As I always say it’s better to own 2% of a business that is worth something, than 100% in a business that is worth nothing. Finally, being a doctor or a plumber does not guarantee your qualification to manage a hospital or a plumbing business. Managing a business is entirely a different science and art of it’s own. Hence, for your team, you will need to have people who are just not basically plumbers or doctors, but managers in that business area. How to Easily Raise Capital in Nigeria – With or Without Collateral. BusinessGuidesNigeria …Providing Nigerians with money making information. Page8 Part 2: Ways of Raising Capital. How to Easily Raise Capital in Nigeria – With or Without Collateral. BusinessGuidesNigeria …Providing Nigerians with money making information. Page9 Chapter 4 Personal Savings For the serious minded business person, the first source of capital for your business is your personal savings. To show how serious you are and then how much faith you have in your business venture. You should be able to raise about 30% or more of the needed money on your own. Without some financial commitment from you, how would a potential investor in your business idea/venture gauge or access your seriousness? Furthermore, you can kick-off your business from scratch with the savings you’ve accumulated while you continue to seek additional capital. Besides, it is much easier to secure capital for a business that is already in motion, than one that’s still on paper (at the ideas stage). As a businessperson or as a potential businessperson, you have to form this very useful habit of saving money for future use. As all habits, it takes a little ‘work’ at first, but then it gets much easier with time. A very easy way of saving is to regularly set 10% or more of your income aside as savings each month. When you start this, you will discover that you are able to live on 90% of your income just as comfortably as you did on 100%. Finally, if you have money stashed away for a rainy day, starting your own business might just be the wet weather you’ve been saving for. However, since more than 80% of all new businesses fail within their first year, you should always be very careful when using your carefully accumulated personal savings to finance your business venture. Plan carefully and make sure you know what you are doing before you begin – no guess work. How to Easily Raise Capital in Nigeria – With or Without Collateral. BusinessGuidesNigeria …Providing Nigerians with money making information. Page10 Chapter 5 Getting Your Hands Dirty If you are truly passionate about you dream and your idea, no work might be too small or too menial. Do you know that Mike Adenuga once drove a cab? Do you also know that former Governor Orji Kalu of Abia State was once into furniture making? Do you also know that Ibrahim Jimoh (of NICON) raised his first significant capital by organizing seminars? Now, I simply cannot stress the following point enough: Pride is detrimental to your success. Do not ever let it stand in your way. You really need money right? What physical jobs have you done to raise money? Can you wash dishes, can you transport people, can you do laundry, can you engage in research for people, can you babysit, can you clean houses, can you fix shoes? Can you paint, do plumbing or carpentry? The list goes on. If you get your hands dirty today and then achieve your dreams tomorrow; who will remember? Now, even if people do, it will actually be a feather in your cap. Do not despise the days of small beginnings – the days of small beginnings are the seeds of great, staggering and magnificent future accomplishments. How to Easily Raise Capital in Nigeria – With or Without Collateral. BusinessGuidesNigeria …Providing Nigerians with money making information. Page11 Chapter 6 Trade Advance/(OPM) The acronym OPM stands for Other People’s Money. In a more formal sense, it’s referred to as Trade Advance. This method is another beautiful way of raising money for your business. However, it does require before hand that you are a trust-worthy person or that you have an established reputation of reliability. Let’s say you offer a service such as web-designing and hosting or that you sell books. Now if you are out of cash, you can easily make your customers or clients who trust you to pay in advance for the product they want. Then with the funds collected, you then simply order for the product or service. If you are a contractor or a manufacturer, you are also not left out. As a contractor, you are naturally entitled to a mobilization fee. And if you are a manufacturer, you can simply approach your wholesellers or dealers with the request that they pay upfront for their next shipment. Now, if you’ve had an established precedent of delivering on your word, there are simply no reasons why your dealers will not happily comply. Can you imagine MTN, UAC or MOBIL being rejected if they asked their dealers to make an upfront payment two weeks before being supplied? The response to the request should be obvious to you – as paying upfront to these companies poses very little risk of loss to the dealer. Finally, you don’t have to be MOBIL or MTN before you can benefit from OPM. Let’s assume you sell food supplements like GNLD or FOREVER on a retail basis. Can you not possibly collect money upfront from someone who has bought from you in the past and was satisfied? Then use then use the money received to order for the products? If you possess some imagination, you will never fail to see how you can use OPM in any business you are to engage in. How to Easily Raise Capital in Nigeria – With or Without Collateral. BusinessGuidesNigeria …Providing Nigerians with money making information. Page12 Chapter 7 Bank Loans NOTE: No Bank will ever give you a loan without a reasonably guaranteed expectation of getting the money back. The Banker who should lend you money is your friend, yes, and he is also the friend of the person who gave him the money to keep! The way banks decide whether to lend money to your business is based on the SOLID business plan that you’ll be expected to present and the assets you possess as collateral. Because of this, it’s important that you spend time making sure you’ve covered every eventuality and have a plan in case things start to go wrong. The more preparation you do upfront, the easier it’ll be to secure the funds you need. If you’re starting a business from scratch rather than buying an existing business or franchise, then as there are no assets to secure the debt against, you may be expected to secure the loan on personal property, such as your house, your already (developed) landed property and sometimes your Insurance or shares certificates . This then becomes a personal loan for business purposes rather than a business loan, but it still works in much the same way. Traditionally, it is easier for an already established business with physical assets, a customer base, a good market position and good financial records to access loans from banks. Unlike Venture Capitalists and Angel Investors, banks are less likely to grant loans to start-ups and micro-enterprises. However, thanks to several programs initiated by the Federal Government to stimulate activity in the Real Sector. Like the Small and Medium Enterprises Equity Investment Scheme (SMEEIS). Under this initiative, banks are expected to set aside 10% of their profits before tax for equity investment in SMEs. Your CD (which came with this material) contains the SMEEIS guidelines for beneficiaries and participating banks. You will also find records of SMEEIS Investments so far by Geography and by Sector – all in your CD. How to Easily Raise Capital in Nigeria – With or Without Collateral. BusinessGuidesNigeria …Providing Nigerians with money making information. Page13 Chapter 8 Small Personal Loans After exhausting your option of personal savings, this is the next avenue to exploit. It is often said that drops of water make an ocean and believe me – this is really true. Using the Small Personal Loans angle, you can easily secure capital by approaching friends, family and your acquaintances – that is if you are passionate enough about your intended venture, know the terrain and have some personal credibility. Naturally, it is easier to get a loan from someone who knows you well than from a total stranger. Additionally, it is quite difficult, in our African setting, for a friend or relative who is in a position to help to turn you down. By soliciting small amounts from each of these people (depending on their different financial abilities of course), you can easily obtain loans between N10,000 to N200,000 from 10 to 20 different persons. N10,000 in 20 places is N200,000 in the same light N100,000 in just 10 places is 1 Million. Are you getting the idea? Obviously, you will find it very difficult to secure loans on a personal level if you have a reputation for dishonesty and inconsistency. People will only give you loans only and only if you are reliable, honest and trustworthy. If you are not – simply spare yourself the ensuing chain of rejections! Lists of most likely people to meet for this purpose include your immediate relations; your parents, brothers & sisters. Your extended family: your uncles, aunts, cousins, grandparents and in applicable instances your nieces and nephews. Your Friends and acquaintances: your school friends, work friends, gym friends, religious friends, neighbours etc. Do not leave any potential capital source out. Furthermore, I need not tell you to swallow your pride. Swallowing your pride means humbling yourself enough to approach other people for help. You are not asking for alms, you are gathering resources to exploit a great idea. But bear in mind that you should not put other people’s money to unnecessary risk. Also note that you might find yourself in some serious financial mess if you misuse the money entrusted to you. Entrusted - because these people believed in your fair sense of judgment. The heightened sense of responsibility you should feel because you borrowed money from people who are so close to you should serve as extra stimulant to propel you to success. Finally, to make things a bit easier on you, you could sell them a stake in your business. However, you should ensure you draw up some legal documentation for this. This move (of letting other people in) will reduce some pressure from you and also add more ‘management’ hands to ensure the greater success of your venture. And as I always say; 70%, 50% or even 10% of a business that is worth something is always better than 100% of a business that is worth nothing. How to Easily Raise Capital in Nigeria – With or Without Collateral. BusinessGuidesNigeria …Providing Nigerians with money making information. Page14 Chapter 9 Selling off Your Luxury Assets How could you have two cars and still be looking for capital? How about those expensive suites, watches, shoes, and all the other items you can live without? Have you thought of converting them into usable cash? Actually, when most people think of capital, they think in terms of heavy chunks of money from a single source; a huge bank loan or a huge private placement from a single individual. They never think of the little and not so little amounts they can generate from the sale of some of their possessions which they can do without – at least temporarily. Don’t you realize you can easily buy more and better cars, houses and lots more from the income generated from your new business? [Note: it is a very dangerous and irresponsible practice to spend directly from your business profits. You should ensure you and your business operate different accounts. I am telling you from personal experience avoid it – it’s something you will regret. Next time you think of generating capital, I’d suggest you think closer to home. And put into serious consideration the conversion of those ‘luxury’ assets you already have into business capital. How to Easily Raise Capital in Nigeria – With or Without Collateral. BusinessGuidesNigeria …Providing Nigerians with money making information. Page15 Chapter 10 Group Collection (Isusu) This is a very beautiful way of raising capital for your business or in fact raising money for anything. However, it requires that you and your participating peers already have a steady source of income. In practice this is very simple to carry out. The first step is to talk to a few persons (usually less than 30 – so that everyone can cycle out within 2 years), people who would be interested in either a savings scheme or who would need cash immediately or within a few short months. The first set of people who need cash immediately will be among the first to receive while the later set who want prolonged saving tenure will cash out later. After you have all decided on the amount each of you can comfortably contribute monthly, weekly or at whatever intervals you all have decided. The next step is to write out the names of everyone indicating when each person will receive their respective pay out. Finally, from this point onwards, when it gets to the agreed interval, you all contribute the specified amount and pay all of it to the first person on the list - Hopefully you; because you initiated it. The next month or week, the next person in line receives too until you all do. Note that you should prepare some legal documentation – which will be signed by each participant. This is to avoid any future problems or misunderstandings How to Easily Raise Capital in Nigeria – With or Without Collateral. BusinessGuidesNigeria …Providing Nigerians with money making information. Page16 Chapter 11 Business Partnerships A partnership is a type of business entity in which partners (owners) share with each other the profits or losses of the business undertaking in which all have invested. The primary reason for forming a partnership is to bring in people who possess strengths that will compliment your own, or strengths that could replace your weaknesses. It could be capital, managerial experience, access to customers, etc. Greater rewards may result from forming a business partnership as partnerships offer more freedom for business owners and the potential to earn higher profits. Because it involves more than one person, a partnership can either be a business disaster or a very rewarding experience. Before you enter into a partnership with anyone or any group of persons below are some factors you should consider very seriously. Factors to consider before entering a business partnership 1. Do you have the same vision?: Do all the parties involved in the business have the same vision for the business? Are your goals the same? If you intend building an international enterprise and your partner or partners are only interested in dealing locally, your business is headed for some trouble. 2. Avoid having equal ownership equity: It is clearly in the best interest of quick decision making in your business for the partners not to have an equal amount of holding. You should be looking at things like 55 - 45%, 75 – 25%, 30 – 30 – 40% etc. The most important thing is that it is structured in such a way as to tip decision making more in the direction of one partner. This is to avoid decision deadlocks’. 3. Create a Partnership agreement: Since no legal documentation is necessary for a partnership agreement, most people tend to go without it. However, lots and lots of costly and business-killing misunderstanding can be avoided by simply drawing up a partnership agreement at the onset. A good Partnership agreement should specify the following: (a.) Type of Business. (b.) Amount of equity invested by each partner. (c.) Partners pay and compensation. (d.) How losses and profits will be shared. (e.) Dispute settlement clause. (f.) Duration of partnership. (g.) Restrictions of authority and expenditure. How to Easily Raise Capital in Nigeria – With or Without Collateral. BusinessGuidesNigeria …Providing Nigerians with money making information. Page17 (h.) Settlement in case of death or incapacitation. (i.) Distribution of assets on dissolution. (j.) Provision for dissolving the partnership. 4. Define business roles: A successful business partnership synergizes the strengths and skills of each partner. A business partnership will stand its greatest chances for success if roles are divided among the partners according to each’s strength. How to Easily Raise Capital in Nigeria – With or Without Collateral. BusinessGuidesNigeria …Providing Nigerians with money making information. Page18 Chapter 12 Private Equity Placement Another often neglected means of raising capital for your business is through the private placement of your company shares. It involves an offering of securities that are not registered with the Securities and Exchange Commission (SEC). To carry this out, first you’ll first have to ascertain the total value of your business and get registered with the Corporate Affairs Commission. Naturally, you would want to employ the services of a competent consultant who will help you out. Furthermore, note that you are sharing the ownership of your business and conversely decision making. Because of this, you might want to retain a greater number of shares than any single individual in order to maintain control. Additionally, don’t expect to begin your business today and then begin seeking Private Equity tomorrow. This avenue is usually for businesses that are a bit established and have serious growth prospects. Finally, the most likely people you might first want to target are your friends, relatives, business associates, etc, then the public in general. How to Easily Raise Capital in Nigeria – With or Without Collateral. BusinessGuidesNigeria …Providing Nigerians with money making information. Page19 Chapter 13 Government Loan Assisted Programs Different governments, both at the State and Federal levels, from time to time introduce programs aimed at assisting small business owners with capital – and sometimes even training. Whether the government’s objective is to improve its image or to genuinely help does not matter. What is important is that they’ve provided a lot of aspiring entrepreneurs with business capital and that they still do so. There are the various NAPEP (National Poverty Eradication Program) that assist start-ups like The Capacity Acquisition program for non-graduates, The NAPEP Revolving Micro-Credit Scheme, The Village Economic Development Solution where beneficiaries are entitled to sums of up to N50 million, and the Promise Keepers Program which is carried out in collaboration with religious organizations. In the promise keepers program, the loans are provided through churches or mosques for them to act as ‘guarantors’ so as to reduce delinquency and loan defaults. Finally, I hope you take the NAPEP program seriously and make enquiries in your area concerning their programs. If you are someone who reads and listens to news, you must have been hearing of the hundreds of millions that have been changing hands through these programs. Your CD contains a list with the contact details of several NAPEP representatives nationwide. You can call or send them an email with your enquiries. How to Easily Raise Capital in Nigeria – With or Without Collateral. BusinessGuidesNigeria …Providing Nigerians with money making information. Page20 Chapter 14 Angel Financing An Angel Investor or a Business Angel is a well-to-do individual who provides capital for a promising business start-up in exchange for equity i.e. in exchange for owning part of your business. Angel financing is typically used to provide a second round of financing for high-growth start-ups after the small personal loans avenue has been exhausted. Business Angels know that they bear extremely high risks so they expect their investment to multiply by at least 10 times within a 5 year holding period. They plan to achieve this through an Initial Public Offering (IPO) or through the acquisition of the business by another body or individual. Besides providing long-term finance, Business Angels also provide their management experience and business knowledge acquired from helping other companies with similar growth challenges. They can also be a source to connect you to very important business contacts. Since Business Angels are usually retired entrepreneurs, they completely understand the needs of an entrepreneur and his start-up business including the pitfalls along the way. And since most entrepreneurs are by nature overtly exuberant, Angels provide a sense of balance which prevents the entrepreneur from making wrong decisions out of unbridled enthusiasm. Decisions which if carried out can be very costly in the short or long term. In economies with very developed private sectors – like the US, UK, Australia etc. An increasing trend is emerging where Angel Investors pool their resources and investment capital together to form Angel Groups/Angel Networks. However, in Nigeria where we do not presently have such groups formally, you will have to take the direct root of asking around and approaching individuals whose profile suggests “Angelic” inclinations. People to look out for include retired or retiring: entrepreneurs, corporate executives, senior government officials etc. Finally and most importantly, you must have a hard-to-resist idea that is easy to understand, workable and that is potentially very rewarding. If not, don’t even waste your time seeking an Angel investor. How to Easily Raise Capital in Nigeria – With or Without Collateral. BusinessGuidesNigeria …Providing Nigerians with money making information. Page21 Chapter 15 Cashing in Your Life Insurance (Life Settlement) A life settlement is a financial instrument that allows a consumer to receive the maximum current cash value of their life insurance policy. This is designed for people who no longer want their life insurance benefits. If your Life Insurance has a cash surrender value, you simply cash it in with your insurer at any time and receive the cash amount accumulated. In some cases too, a bank might accept you insurance policy as collateral before granting you a loan. Finally, if you do have a life insurance policy, just know that it could be the source of business capital that you need. How to Easily Raise Capital in Nigeria – With or Without Collateral. BusinessGuidesNigeria …Providing Nigerians with money making information. Page22 Chapter 16 Bank Overdrafts A bank overdraft simply means when you withdraw more money than your actual balance. This facility is usually provided for current account holders with active accounts. If your account shows a reasonable level of activity, you can be able to receive an overdraft. Your cash-flow needs to be in such as state as to convince your bank manager or account officer to approve your overdraft. A good habit you should form as a business person is to carry out most of your transactions through your bank account. You can make all or most of your payments through checks and try to receive cash through your bank too. In addition, if you have a steady monthly income, some Nigerian banks like bank PHB allows you to easily walk into any of their branches and cash up to 50% of your total monthly salary in advance – with no hassles. However, this requires that you domicile your salary account with them. On further arrangements you can easily take out up to 250% of you monthly salary and then pay back conveniently over a period of 12 months. Furthermore, other banks can even give you more. Zenith bank for example can provide you with a loan of up to 500% of your monthly salary and allow you a repayment tenure of 12 to 24 months. Nevertheless, you should note that this could be a very risky undertaking if you take out a sizable chunk of your living income as loan and then fail to raise money from the business you are engaging in. To be on the very safe side, avoid playing with more than you can afford to do without. You must be absolutely sure of what you are doing before you stake a substantial part of your salary on it. Finally, do note that the banks charge you interest rates that are applicable to other loans – it’s what they are in business to do. It’s how they make their money. How to Easily Raise Capital in Nigeria – With or Without Collateral. BusinessGuidesNigeria …Providing Nigerians with money making information. Page23 Chapter 17 Leasing A lease is an agreement between you (the lessee) and a lessor, whereby the lessor allows you the use of an asset which he owns. In return, you pay rental at intervals agreed upon by both of you. The option of leasing can be very helpful in conserving much needed cash in your small business as you will not have to commit huge amounts of money for an outright purchase of equipment or property. Additionally, banks now offer leasing services. To this effect, you can simply walk into your bank and make enquiries if the items which you intend spending can be acquired through a lease agreement with your bank. Furthermore, by leasing an equipment or asset, you can most easily upgrade to later and more improved models without having to spend huge funds. You can easily inform your lessor that you want the latest model or you can look for someone else who does
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