The outbreak of the novel virus Covid-19 has had a great impact on existing small businesses, especially in developing countries. SMEs in Nigeria have had to deal with anxiety over uncertainties that might exist after the crisis, challenges with cash flow, customer retention, and disruption in essential operation processes. Many have lost millions of Naira due to the economic implications caused by the pandemic, especially in industries that are customer facing.
However, in the midst of this, an array of companies have also sought out ways to raise finance to ensure their sustainability while also leveraging the relatively cheap opportunity to raise capital.
It is pertinent to note that of the many challenges faced by SME’s in Nigeria, the lack of finance is one begging to be solved. Statistics show that 80% of small businesses started in Nigeria fail within the first five years. This alarming rate of business failure is attributed to several reasons, the most commonly cited being insufficient capital, as well as poor access to credit facilities.
For a country suffering numerous infrastructural challenges, and a difficult business environment, the inability to raise sufficient capital presents itself as the deadshot to businesses. Credit facilities could have been a viable option, but this has not been the case.
A recent PWC survey has revealed that Micro, Small, and Medium Enterprises do not rely on banks to meet the majority of their funding needs. For the MSMEs interviewed during the survey, bank loans are impossible to get mainly because of their bureaucratic application process and high interest rate. About half of the respondents (50%) admitted that they did apply for bank loans over the last 12 months, but never ended up taking them due to their high costs. The report also noted that high cost of capital is one of the major costs to business operations in the country.
Thus, to aid startups and budding small businesses, these are a few alternative ways in which business owners can raise the much needed capital they require to start, sustain, and scale their businesses.
The Nigerian government earlier in May had announced plans to establish an SME Survival Fund to sustain at least 500,000 jobs in 50,000 SMEs. The said funds will be targeting businesses in critically affected sectors such as hospitality, creative industries, road transport, tourism, and schools.
Interestingly, the plan states that these grants will be disbursed through microfinance banks and fintech credit providers. A three-month timeline has been earmarked for the disbursement of these relief funds and the scheme will be implemented through the Steering Committee on the MSME Survival Fund, the Federal Ministry of Industry, Trade, and Investment, and the Bank of Industry.
Crowdfunding is another popular way of sourcing for funds; it depends on a system of generating small investments from a large number of sources. It is believed that it is easier to raise small amounts of money from many people than it is to raise huge sums of money from a few people.
Some of the different types of crowdfunding are – Donation, Reward-based, Debt and Equity Crowdfunding, which is one of the most recommended. With equity crowdfunding, investors give money to business owners in exchange for a percentage of ownership of the company; then after a window of time, the company repays the investors with interest in return. Most times the investors receive repayment or reward with interest within a designated period of time.
Provided that your business isn’t operating in an industry that requires lots of startup capital, like manufacturing or transportation, you can potentially fund your own venture—and it may be more feasible than you think. Although funding the business yourself carries lots of risks, it is important to consider your potential. If you believe in the vision for your business, you should feel comfortable investing your own money in your business. It also encourages potential investors who are willing to partner with you down the line.
SME SUPPORT ORGANIZATIONS (ACCELERATORS & INCUBATORS)
In recent times, we have seen the rise of accelerators and incubators in the Nigerian startup and SME scene. Numerous small businesses have been beneficiaries of the support of incubators and accelerators, such as Fate Foundation, Tony Elumelu Entrepreneurship Foundation, CoCreation Hub, Google LaunchPad, Y Combinator accelerator programme, to name a few.
Incubators are companies that provide support services such as office space, electricity, and business management training to small businesses. While an accelerator is a program that gives companies access to mentorship, training, investors and the support they need in order to maximize their growth.