In the business world, it is generally accepted that money is the life of a business. Without money, a business struggles and then it dies. In Nigeria, almost every entrepreneur is searching for entrepreneurship loan and grant to expand his/her business and move to a bigger level. This is more compelling for young graduates who hardly have start-off funds to actualize their dreams of owning their own business(s). Unfortunately, there aren’t too many organisations offering grants to small and medium businesses except for financial institutions that offer loans at inhibitive rates.
The role of finance cannot be over-emphasised in the development of entrepreneurship and Micro, Small and Medium Scale Enterprises (MSMEs). The environments in which entrepreneurial activities are propagated contribute significantly to the development of private sector. Consequently, conditions that are favourable constitute the bedrock for the survival, growth and competitiveness of entrepreneurship development (UNESCAP, 2012). Availability and access to adequate and sustainable finance therefore is critical for entrepreneurs and small and medium enterprises (SMEs) in view of the fact that the life cycle of businesses require varied needs for cash, taken cognisance of the start-up, growth and transition stages of development. The increasing emphasis on the significance of entrepreneurship as a decisive factor for national development has dovetailed into the search through a wide range of schemes targeted at hastening the tempo of new business activities in the organized private sector (Okpala, 2012). To build and sustain SMEs, the entrepreneur needs to access diverse form of resources such as financial capital, human capital and physical capital with each playing significant but different roles during the life cycle of a new business (Fatoki, 2014).
Gaining sufficient access to capital is one of the crucial hurdles to overcome in starting and growing a new business. In view of the important role played by entrepreneurship development in the process of creativity and innovativeness and hence economic growth, it is therefore not surprising that drives to alleviate financing constraints encountered by would-be entrepreneurs form a significant goal for policy makers across the world.. According to Pandey (2005), start-up capital (for new entrants) and working capital (for existing ones) constitute one of the major limitations of entrepreneurship since they can neither penetrate the capital market nor meet the requirements imposed by commercial banks for funding. The performance of entrepreneurial ventures in Nigeria have failed to produce the desired and expected impact on the growth and development of the economy and this is attributed to the array of challenges confronting SMEs among which is finance (Ogbo & Nwachukwu, 2012).
Lack of access to credit is one of the critical challenges confronting Nigerian entrepreneurs because they are constrained by dearth of collateral, non-existing past track records for business appraisal, occasional lack of cognate experience (Somoye, 2013). The incapability of innovative entrepreneurs to convince financial intermediaries to invest in risky projects which is perceived to have the tendency to offer low returns also constitute a major hurdle for entrepreneurship development. Though bank lending is the commonest source of external finance for many entrepreneurs and SMEs, with heavy dependence on traditional debt to satisfy their start-up, investment needs and cash flow, traditional bank finance often pose challenges to newer, innovative and fast growing SMEs that possess higher risk-return profile (OECD, 2015). As much as asset-based finance has a wide-spread usage in entrepreneurial and SME financing terrain, little seems to be known about the extent of deployment and success of alternative forms of financing for entrepreneurship development in Nigeria
Pickle & Abrahamson (1990) introduced a compact definition of an entrepreneur. According to them, “An entrepreneur is one who organizes and manages a business undertaking, assuming the risk, for the sake of profit. The entrepreneur evaluates perceived opportunities and strives to make the decisions that will enable the firm to realize sustained growth” Entrepreneurship is the act of being an entrepreneur or “one who undertakes innovations, finance and business acumen in an effort to transform innovations into economic goods” (Shane, 2003). This mayresult in new organizations or may be part of revitalizing mature organizations in response to aperceived opportunity. The most obvious form of entrepreneurship is that of starting new businesses(referred as Startup Company). Entrepreneurship is the willingness and ability of an individual to seek for investment opportunities, to establish and to run an enterprise successfully (Suleiman, 2006). The entrepreneurship spirit is a pre-requisite to an entrepreneurial society and culture. This spirit is required for the overall economic growth of any nation especially developing ones like Nigeria. This is in line with the view of Nwangwu (2006) that entrepreneurship is the willingness and the ability of an individual or a firm or an organization to identify an environmental change and exploit such an opportunity to produce goods and services for public consumption. In the words of Dangote as stated by Odjegba (2005) entrepreneurship is built on vision, focus and determination. It is built on standards management practices, enabling environment, access to funds
Not minding the intrinsic potentials of a business, access to start-up funds or seed capital is a key requirement for translating an entrepreneurial opportunity into a business venture, and is required for keeping the business running as a going concern. In financial terms, a business must have the capacity to generate positive net internal cash flows within a reasonable timeframe after start-up and must maintain an adequate level of financial flexibility. Some of the sources and strategies for financing an entrepreneurial opportunity are as follows:
• Bootstrapping: This is the financing of the start-up or proof-of-concept phase of your business venture using your very limited personal resources. It involves conserving financial resources to the extreme using creative cost cutting techniques, deferring payments as far as is possible, negotiating favourable terms of credit and trade, and leveraging sources of spontaneous finance. Almost all entrepreneurs start off their ventures in this way. It is the hallmark of the tenacious and innovative entrepreneur, and it is often a matter of expediency given the difficulty in attracting funding for an untried and untested business idea and entrepreneur.
• Family and friends: Never ask your family and friends to contribute to a venture that you ordinarily will not contribute to. Treat the transaction as a business deal and agree terms and conditions of the loan in writing, and keep to your commitments. Also be ready to secure the loans provided by your friends and family with equity in your venture.
• Angel investors: These could also be family and friends, but are more usually investors and individuals who are willing to provide debt and equity finance to a business at very favourable terms without taking an active role in the business. They are usually high net worth individuals who invest in start-ups for a combination of limited investment returns but mainly for socio-philanthropic reasons. Angel financing sources exists in Nigeria, however the practice is not very structured or formalised. Entrepreneurs can gain access to Angel funds by becoming members of small and medium business network groups such as those run by the Fate Foundation and the Enterprise Development Centre (EDC) of the Pan African University, under its meet the lender initiative.
• Bank of industry and other development banks: Like most other developing countries, the government of Nigeria is trying to encourage the development of SMEs by improving them with access to funds. The Bank of Industry (BOI) is one such initiative. Depending on the size of the business, the BOI can provide funding to manufacturing oriented business for capital acquisition and or working capital, and in the form of both equity and debt financing. The website of the bank contains information on the criteria for accessing the funds.
• FGN/CBN N200 billion intervention fund: In 2011, the federal government of Nigeria through the CBN setup a fund part financed by other multilateral agencies for providing access to funds to a number of critical sectors such as entertainment industry, manufacturing and SMEs. This fund is being managed and disbursed by the Bank of Industry. The criteria for eligibility can also be found on the website of the bank.
• FGN agricultural sector intervention fund: This fund is similar to the N200 billion FGN/CBN intervention fund. It is aimed exclusively at businesses involved in the agricultural sector and it is being managed and disbursed by the agriculture desk of participating commercial banks. Diamond Bank Plc., First bank Plc. and UBA Plc. are actively involved in the scheme.
• Commercial bank loans: Term Loans and Overdrafts: While this source of financing is not easy to access by entrepreneurs, especially start-ups without a business history and collateral, it is still a source of finance worth considering depending on the nature of the business and the particular funding requirements. One note of caution is that these sources of finance can be very expensive. Appropriate level of due diligence is thus advised. Other types of financing arrangements provided by commercial banks include bills discounting, import financing facilities, and invoice discounting.
• Lease finance options and project financing: Again depending on the viability of the project, a number of banks, finance houses, leasing companies can provide lease finance for the acquisition of equipment under operating and capital finance arrangements as well as specific project finance arrangements.
• Private equity and venture capital financing: Starting from about 1998, a number of indigenous and foreign private equity and venture capital firms have established a presence in Nigeria and have invested in very high profile and profitable Nigeria ventures. Examples include Capital Alliance Private Equity, SME Managers, Renaissance Capital, Grofin to mention just a few. While their investment threshold may be high, starting on average at about N50 million, a few have been known to invest as low as N20 million or less. Their investment takes the form of equity and debt capital and they usually also provide management support and business advisory services, ensuring that the business is professionally run. Minimum criteria for accessing funding are a professional business plan, a proof-of-concept, demonstrable high return on investment, satisfactory due diligence report and valuation.
• International Finance Corporation (IFC) and African Finance Corporation: These are financing sources for fairly large investment projects and require a high degree of sophistication and performance history.
by Mazi Azubuike Okoro of CBN