Entrepreneur, Managing Director, GeoTechVision
Finance has been identified in many business surveys as the most important factor determining the survival and growth of small businesses. Despite the importance of small businesses to a country’s economy, entrepreneurs have traditionally had difficulty in obtaining formal credit or equity financing. The reality is that most small businesses pull together funding from several different sources over a period of time. Many entrepreneurs will tell you that access to finance is one of their biggest challenge. Many have found it extremely difficult to obtain funding from traditional banks. For many, there is also no single source of funding that is easier to access.
Whether you are a start-up seeking capital or an operating small business seeking finance to grow, accessing funding may be very difficult. It is however very important that you remain positive: be flexible, be creative, be determined, be deliberate and be vigilant in your efforts. Below are a few ways to get funding for your small business:
- Self-funding. Many small business owners ‘boot-strap’ their businesses for a time until they are able to attract formal funding opportunities. There are many ways to accomplish this – from personal savings accounts to leveraging other personal assets. If you truly believe that your business idea is profitable and you are determined to make your vision a reality, then you should be willing to invest your money in your business. This also boosts the confidence of potential investors as they recognise that you have some of your own money in the game.
- Family and friends.
Those closest to you are likely more willing to take a chance on you as they usually want to support your projects, especially if you have a reputation of being committed and determined to succeed.
When one goes this route, however, it should always be treated as a professional business transaction where an agreement is made that clearly sets out the terms and condition of the investment. In such a transaction, it is usually a good idea to get legal advice. This is useful to ensure that personal relations are not damaged should the business fail.
- Partners. Taking on a partner can be a source of funding. The partner may or may not become involved in the business as an employee. Strategic partners can benefit the business by aligning and leveraging resources. For example, a restaurant may choose invest in a farm because it will be able to buy produce from that farm, or a hotel may invest in a tour company as it could eventually feed work to the tour company.
- Crowdfunding. This is primarily a way of pitching your business idea via the web through a selected crowd funding platform where potential investors are seeking ventures to participate in. Investments can be debt, equity or rewards-based. You may need assistance in this area. There are many crowd funding sites. Some of the most popular ones are kickstarter, Gofundme and Indiegogo. One of the best developed crowd funding platform in the Caribbean is pitchandchoose.
- Product presales. Selling your products before they launch can be an effective way to raise funds needed to finance a business.
This involves allowing people to buy products at a special introductory rate and then fulfilling those orders from the money they paid up front.
- Grants. Government and donor agency grants can be a source of funding for your business. Please check the Small Business Bureau, business associations and chambers of commerce to learn about possible grant funding. Please note that for grants, recipients are usually required to meet certain prescribed criteria.
- Small business loans. Armed with a business plan, your financial statements, profitable projections and a percentage of your own money, you may approach a financial institution for a small business loan. Outside of commercial banks there are some smaller institutions that you may want to consider.
- Angel Investors. You can raise money through Angel Investors. There are currently at least 3 Angel Investor networks in the Caribbean. When raising money from Angels or Venture Capitalists, you must recognize that they will own a piece of your business and you are expected to act in the best interests of the business and its shareholders. You must decide if this is the right choice for you.
There are more options for funding small businesses than we have covered here. New financing options for small businesses are rapidly evolving. What is very clear, is that raising money to fund a small business takes diligence and is not for the faint of heart but with a good business plan, your commitment, integrity and persistence, funding can be secured.
If you have a question related to this article or just a general question on entrepreneurship, write to us at guyanabusinesswise@gmail.com. Your question may be addressed directly or in our next article.
