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Sources of Business Financing for Entrepreneurs (Nigeria as Case Study)

by Olufisayo
Sources of Business Financing for Entrepreneurs (Nigeria as Case Study)

After conceiving a business idea, an entrepreneur needs money to commence his or her business. We will discuss how to raise funds for business in Nigeria in this article.

The expenses incurred include;

a.  Pre-operation expenses which include payment for legal/registration of a business, payment for consultancy services as well as payment for running around. In some cases, this may also include payment for training.

b.  Initial working capital, this is used to pay for consumable factors/inputs, a venture can not be functional even after installing the fixed assets until these expenses are incurred.

c.  Operating cash flow. Business needs a minimum level of cash to run.

       

d.  Payment for fixed assets which may include land, land development, furniture, financial management software, equipment, etc.

All these expenses highlighted above are to be met; the value, however, depends on the sophistication of the operation. Starting a business can be tricky, but with the help of an eProcurement service, you will be well on your way.

READ: How to Become an Entrepreneur with No Money or Experience

How do Entrepreneurs Source for Funding in Nigeria?

An entrepreneur can source for fund through

1.  Owner’s Equity
2.  Loans
3.  Grants

a. Owners Equity: This is the owner’s fund contribution in business. It is also called risk capital. This is the most reliable source of funding in business. For it put less pressure on the entrepreneur even if the business failed.

This money is raised from the past savings of the entrepreneur. It may be a contribution from friends, relations, etc. The important thing is that there is no commitment to repayment on the entrepreneur.

       

b.  Loans: This is a facility given to the entrepreneur with an obligation to pay the sum and accrued interest at an agreed date.

This can be sourced from private sources or financial institutions such as microfinance houses or commercial banks. It is not the best source of financing new business, because the payment put pressure on the entrepreneur and the business.

Where it could not be totally avoided, an entrepreneur should be careful in taking it. As an alternative to this option, a starter is advised to take up an apprenticeship to gather knowledge as well as money to start the business.

Types Of Loans And Facilities

1. Short term loan: This is the type of loan with a repayment period of less than six calendar months. This is the popular type offered by micro banks and venture capitalists.

They are usually sourced to finance working capital and ventures with short term gestation. They usually attract payment of interest at a high rate.

       

2. Medium-term Loan: The duration of payment for this facility does not exceed twelve months. Both commercial banks and microfinance institutions are reluctant to grant this type of facility because they need funds to run their own businesses. They avoid anything that will tie down their article of trade (money).

3. Long term loan: This type of facility is repaid after two years or more. It is sourced for capital projects, it is usually provided by specialized banks such as Bank of Industry, NEXIM, etc; small scale business entrepreneurs may not be able to access this type of loan because of stringent conditions attached to it.

4. Overdraft: This is a facility that allows an entrepreneur to withdraw more than what he/she has in his account. It is an arrangement between the bank and its customers to withdraw above the balance in the account.

It is approved by the appropriate authority in the bank. It is usually for a few days or weeks. Microfinance and commercial banks offer this type of facility which is subject to renewal.

5. Syndicated Loan: This is a practice whereby two or more lending financial institutions agreed to provide a fund to finance a large project, usually a consortium of banks as creditors package such loans with one of the banks as the leading bank.

       

6. Trade Credit: This refers to different trade arrangements between sellers and buyers whereby payment for goods purchased is postponed till the agreed date.

7. A loan from Credit/Thrift cooperative societies: These associations/organizations are formed to provide credit to their members at an affordable/concessionary interest rate compared to what obtained at the money market.

Small scale entrepreneurs are encouraged to belong to their associations to enjoy this facility.

8. Equipment Leasing: This involves an arrangement between the financial institution and its clients, whereby the institution agreed to purchase a fixed asset such as equipment/machine for its client who repays the cost of this equipment and interest accrued on it over an agreed period of time. This arrangement checkmate diversion of credit to other uses.

c. Grants

       

Government and non-government organizations sometimes give grants to potential entrepreneurs to start small businesses. This is an allowance that a government or an organization gives to support small business creation in the country.

Examples include grants given by EcoBank, GTB, state and local governments through their different youth empowerment programs.

How does an Entrepreneur Access Institutional Loan Facility?

Since the loan is to be repaid, financial institutions are very careful to part with the fund put in their trust by the shareholders. The prospective borrower is expected to come up with a convincing business plan or feasibility plan.

This is a comprehensive, detailed document that will show the viability of the project for which the loan is being sourced. The document will show among other things.

i. The profile of the entrepreneur

ii. Description of the product or services being rendered

iii. Technical profile of the business

iv. Marketing profile

v. Manpower Structure/Organogram

vi. Accounting/profitability index etc.

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52 comments

Ebube Dibie July 8, 2011 - 2:22 PM

You guys are Fantastic. What you are doing is great. Please i need materials on “The role of commercial banks in SME growth and development in Nigeria” Thank you.

Reply
folashade January 21, 2016 - 6:45 PM

i most confess you guys are great, may god continue to be your strength. please i need the full material on
( The roles of commercial and development banks in the promotion of small and medium scale enterprises.

Reply
May July 19, 2011 - 11:15 AM

Hi thanks for the information you have provided. I want to know are there any companies in nigeria that practise equipment leasing? and if there are can I pls get their contact..thanks.

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Olufisayo July 19, 2011 - 11:24 AM

Thanks for your message May. I’m sure of equipment leasing company in Nigeria. Just google the equipment you need and you get their contact. What equipment do you need?

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Ebube Dibie November 18, 2011 - 3:28 AM

In developing countries characterized by low capital formation, and weakness of both the capital and money markets, the major sources of finance available to budding entrepreneurs are majorly through personal savings, loans and support from family and friends and government scheme’s to support SME’s.

Reply
Ameh Enojo November 22, 2011 - 12:08 PM

Financing is a major challenge for upcoming enterpreneurs in Nigeria.The Government needs to have a human face to help eradicate the level of poverty in the country.

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Olufisayo November 22, 2011 - 12:16 PM

Yes Ameh, financing is a problem but you need to have a great and innovative business idea. The Government is making plans to help out too in Nigeria. Check this link YouWin!

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ODERINLO OLUWAKEMI January 30, 2012 - 4:54 PM

I APPLIED FOR YOU WIN WAS NOT TAKEN ,EVEN WHEN MAY LINE OF BUSINESS IS THE ONE THAT WILL HELP TO ERADICATE
POVERTY AND PROVIDE EMPLOYMENTS FOR MANY NIGERIANS IN MY LOCAL ENVIRONMENT.

ALL AM SEEKING IS ANOTHER AVENUE TO RAISE FUND TO FINANCE MY IDEA BUT THAT HAVE BEEN A VERY DIFFICULT TASK TOO.

PLEASE KINDLY INFORM ME ON OTHER MEANS OF RAISING FUND TO FINANCE THIS PROJECT BECAUSE I BELIEVE SO MUCH IN HELPING PEOPLE.

THANKS.

Reply
Olufemi Peter March 13, 2012 - 12:06 PM

Cool, i like your work youth with Innovative ideas should be empowered.
They can try forming cooperative society to access certain support in the bank. Like the Dangote fund in BOI.

Reply
Olufemi Peter March 13, 2012 - 12:11 PM

Also try FCMB and STANBIC Bank for loans without collateral.

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Olufisayo March 13, 2012 - 2:40 PM

Thanks for this use information and contribution Peter. Nice having you on on website.

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Nenye July 4, 2012 - 9:30 AM

Thanks for data provided. Please a person that wants to finance his/her old business, will the procedure Aids or is that any other alternative?

Reply
Adeleye Olayinka July 11, 2012 - 3:05 PM

The how-to-do-it contributions were highly appreciated. I hope to get my vision realised

Reply
EKEKHIDE T KADIRI August 2, 2012 - 11:17 AM

I AM AN INDEPENDENT CONSULTANT ON GIVING CAPACITY BUILDING TO MSMEs THAT ARE INTO AGRIC RELATED BUSINESSES AND WE EQUALLY GIVES COUNCELLING TO THE TRAINEES AND ALSO ASSIST THEM TO DEVELOPED BANKABLE BUSINESS PLAN/FEASIBILITY STUDY IN ORDER FOR THEM TO ACCESS FUNDS AND OTHER RESOURCES FOR THEIR SUSTAINABILITY. MY QUESTION IS HOW CAN WE COME INTO NIGERIA CAPITAL DEVELOPMENT FUND AND PARTNER TOGETHER.

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Eseka Igwe Augustine August 16, 2012 - 11:05 PM

Am glad to come across this wonderful website. I was able to develop a business plan on yam, plantain, cassava and beans flour production. I have been in the business though with crude method of production but now want to go into using technology. I want you people to help me with grants to enable me start-up
send me information to kiainspiro@yahoo.com

Reply
sulaimon Anike August 19, 2012 - 11:03 AM

thank you for making my search easier

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Olufisayo August 19, 2012 - 2:45 PM

We are glad we could be of help to you Anike! Thanks for dropping this

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athif September 18, 2012 - 9:19 AM

what is the best source of finance for start-up business

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sani ali mohammed November 1, 2012 - 3:39 PM

please the role of NDE in developing small scale enterprise in Nigeria

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Onikan Adebayo April 29, 2013 - 6:25 PM

My question is this,how can i access start up loan?cos i want to go into advertising business and i can fund it alone,so i dont know if banks do finance business .silurdadebayo@gmail.com

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olatunji May 27, 2014 - 7:06 PM

Great work you are doing here and thanks so much, please can you provide me with list of grant givers in Nigeria including government and private organisation. Also, if I want to get in touch with you guys how do I reach you.

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Shanu June 20, 2014 - 12:37 PM

Please, i am currently in a monthly paid job. However, wish to state i have intention of starting my own business which put the entire start up which includes cost of a Ware House rent @ between 300-350.000 and cost of minimum purchase of goods for distributorship from the Company to between 600- 650,000, The whole sum required now put at One Million Naira. Kindly advised how to source or an Institution that can be approached for the business Finance

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Olufisayo June 20, 2014 - 1:16 PM

Try https://www.meetneedsservices.com/ and Micro finance banks like https://www.accionmfb.com/ etc.

Note: We are NOT in partnership with the companies.

Good luck!

Reply
patrick October 11, 2014 - 9:06 AM

Nice post pls can u help me with material on the pre-modern source of business finance in nigeria

Reply
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[…] Thank you for taking time to read through our post your contributions through comments would be greatly appreciated. Kindly share with others by inviting them to our website and also share using the social networking icons below. In our next post, we would be examining the Various Sources of Business Financing for Entrepreneurs […]

Reply
Labi January 5, 2015 - 1:16 PM

Thanks for the above infos. I am into small scale fish farming business bt will love to expand n also to diversify. Is there any finaancial institutions I can approach for loan?

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emete Emmanuel January 27, 2015 - 10:18 PM

thanks very much for the post, it is really a motivational message. Am an upcoming ict entrepreneur and I gat what it will take to be a ceo in the next few years but the difficulty am having now Is that I lack the capital and the finance but I know that with God I will achieve what I have dreamt of.
Thank you

Reply
olamide April 12, 2015 - 7:34 PM

we have high unemployment rate in Nigeria,we are begging Govt to invest in industrialization and limit importation in the country

Reply
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Reply
John Wellington June 26, 2015 - 2:18 PM

I appreciate your work on this site, may the Almighty bless and reward you.

Am into interstate transportation, a transport company in my State is giving out 16 seater bus on hire purchase, but an initial deposit of N1.6M is required, then the remaining ballance are paid in installment within the period option of between 6 months to two years

Is there any financial institution that can empower me

Reply
Olufisayo June 26, 2015 - 4:30 PM

Have you tried https://renmoneyng.com/ and https://meetneedsservices.com ? You can talk to micro finance firms too. Goodluck!

Reply
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Reply
Ola San August 15, 2015 - 10:12 PM

Kindly advise on how to put up a healthy business plan. 2. Are there other sources of business financing? Most financial institutions mentioned above never like to see small business owners. Please advise.

Reply
teeman August 22, 2015 - 3:14 PM

Nice work u are doing. God shall crown ur efforts with soul lifting testimonies

Reply
Olufisayo August 24, 2015 - 11:40 AM

Amen! Thanks

Reply
SUNDAY October 1, 2015 - 1:19 AM

Pls as an undergraduate of finance ,how can i get tips on hw to issue or buy new share with my allowance

Reply
sunday October 1, 2015 - 9:15 AM

hw can i get connect wit stock broker?

Reply
Olufisayo October 2, 2015 - 5:26 PM

Search online.

Reply
kingsley January 31, 2016 - 9:44 AM

Gudday admin. Am really pleased with your site cus it has greatly assisted me in d cos of my project.. But pls sir, i dont know if you can help me with the complete material for this project topic.. “Sources of Business Financing for Entrepreneurs (Nigeria as Case Study)”. Thank You. And please this my email address.. Kingsleyejim44@gmail.com

Reply
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muhammad March 11, 2016 - 1:10 PM

what are the development and promotion of entrepreneur

Reply
Aminu Ahmad mashena April 16, 2016 - 8:27 PM

please how can I start a small business

Reply
Olufisayo April 16, 2016 - 8:33 PM Reply
fadila April 28, 2016 - 5:56 PM

This Web page is extremely amazing. Thank you so much for this information! I passed my economics project with an A+. Thank you so much once again. Please keep it up

Reply
Olufisayo April 28, 2016 - 6:49 PM

Hi Fadila,
We are happy to hear about your success and also happy to know our website helped. Thanks for the feedback.

Reply
Entrepreneurshiply October 22, 2016 - 7:41 PM

Great article. Thanks for sharing

Reply
shah November 1, 2016 - 7:44 PM

s

thanks but i need to know about benefits youth in entrepreneurship contribute to an economy

Reply
Bunmi July 21, 2017 - 12:39 PM

Good results. thanks to you i got 27/30.But sir,i still could not find the alternative names known of the public enterprises. probably you should add that there. i would love to be an entrepreneur like you someday.

Reply
Firdausi December 18, 2017 - 9:00 AM

I really appreciate ur work and is of great help to me Tnks

Reply
Alan Potts January 10, 2018 - 11:58 AM

Very helpful post. Thanks for sharing.

Reply

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