Connect with us
nairametrics
UBA ads

MSME

Crowd Funding: The coolest way to get your business idea on the fast track

Published

on

In recent times, we at McBrain & Company have had lots of people come to us with lots of cool business ideas and in many cases we have even taken the pride of drawing up some pretty kool business plans and/or proposals for them after hearing most talk with such verve and gusto about their ideas to the point one would almost think these ideas were already off the ground and into the operational phases.
And just when it all seems so real, the fantasy popping question comes bring it all to reality “so, why aren’t you in operations yet?”, and then the euphoria dies and suddenly the once illuminated and boisterous face with light bulbs flicking ceaselessly now wears a sad look and then the answer comes, every time to the extent that it has almost become a sounding cymbal, “Bros, no barr nah”.
In one of our earlier newsletters, we dealt with the differences between a Good Business Ideas and Bankable Business Ideas. And for those of you still trying to make up your minds about getting that idea off out of your head and onto paper, of course we are here to help you with that, so that the real hard work of investor sourcing can begin, then It might be best to seek out that earlier sent newsletter or simply send a mail to [email protected] requesting this newsletter and we will gladly forward it to you.

But, today, we would like to talk about an investor sourcing trend that is catching on, mostly abroad, and you should strenuously consider in your business funding efforts. Any demerits you may ask? But of course it has! However, one merit, in our opinion, far outweighs any two/three demerits put together. So, here we go…

Crowdfunding is a way of raising finance by convincing many people to each give you small amounts of money to fund your idea(s). Traditionally, financing a business, project or venture involved asking a few people for large sums of money. Crowdfunding switches this idea around, using the internet to talk to thousands – if not millions – of potential funders. Think of it as a mini IPO without the hurdles of going to SEC for approval. However, like any IPO, you have to up a profile (need one? Then you should be talking to us!) of the project somewhere for people to look it up and study to ascertain project bankability. Then you use social media, alongside traditional networks of friends, family and work acquaintances, to raise your required funding needs.

Below is a brief description of each of the different type of crowdfunding;
Donation / Reward Crowdfunding
People invest simply because they believe in the cause. Rewards can be offered (often called reward crowdfunding), such as acknowledgements on an album cover, tickets to an event, regular news updates, free gifts and so on. Returns are considered intangible. Donors have a social or personal motivation for putting their money in and expect nothing back, except perhaps to feel good about helping the project.

Debt Crowdfunding
Investors receive their money back with interest. Also called Peer-to-Peer (p2p) lending, it
allows for the lending of money while bypassing traditional banks. Returns are financial, but
investors also have the benefit of having contributed to the success of an idea they believe in. In the case of microfinance, where very small sums of money are leant to the very poor, most often in developing countries, no interest is paid on the loan and the lender is rewarded by doing social good.

GTBank 728 x 90

Equity Crowdfunding
People invest in an opportunity in exchange for equity. Money is exchanged for a shares, or a small stake in the business, project or venture. As with other types of shares, apart from
community shares, if it is successful the value goes up. If not, the value goes down.

Upsides
Crowdfunding provides another strategy for startups or early stage companies ready to take it to the next level – such as rolling out a product or service. Before, a business owner was subject to the caprices of individual angel investors or bank loan officers. Now it is possible to pitch a business plan to the masses.A successful crowdfunding round not only provides your business with needed cash, but creates a base of customers who feel as though they have a stake in the business’ success.

Downside
If you don’t have an engaging story to tell, then your crowdfunding bid could be dead before even hitting the ground.
And that could be a lot of wasted time that could have been spent doing other things to grow the business.
What could be worse is you realize you underestimated how much money you needed. Another business risk is getting sued if you made certain promises concerning the product or investment perks in return for donations, and then failed to deliver.
There is also an argument to be made that angel investors and even bank officers provide more than just money. They provide entrepreneurs with needed advice. Business owners miss out on such mentorship when they ignore traditional investors and turn to the crowd.

To be Cond; Do Stay Do tuned and never forget…
Nothing good comes easy, so never stop trying. Good luck, and be patient
with yourself and humble with your successes…

Brain Essien is writing from Lagos

app

Nairametrics frequently publishes articles from experts such as financial analysts, economists, researchers and investors. We also feature articles from guest writers and bloggers who wish to push their views and opinions through our platform. To get your articles on Nairametrics, kindly send an email to [email protected] and we will publish it within 24 hours of approval by our editorial team.

Click to comment

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

FEATURED

What policy changes, other challenges hold for MSMEs in 2020 – Chief Economist, PwC

The startup companies are valued at over $1 billion because the uncertainties of doing business in Nigeria are quite high.

Published

on

Andrew Nevin

It is a given that 2020 has been one of the most trying years for business owners and entrepreneurs. Some businesses have been crushed completely, with some left barely breathing.

The year started with the announcement of the increased VAT rates, moved on to the coronavirus pandemic and its attendant challenges, the global oil crisis and its implications on national revenue, and just after the easing of the lockdown, the recent increase in fuel price. What do all these connote for Micro, Small, and Medium Enterprises that were already groaning under stiff economic policies and trying to survive the hard days? Your guess is as good as mine.

Taxation in the middle of a pandemic

Amid all of these challenges, the government (through its agencies) trying to widen its tax net and improve revenue, with more duties and tax options being imposed on Nigerians. Just recently, as courier and logistics business operators were still trying to grapple with the implications of the increased NIPOST license fees, when NIPOST and FIRS went on a social media war of words over which agency is constitutionally justified to collect the Stamp Duties.

There is also the recent rental tax announced by the government, a move still being protested by unions who have argued that this pandemic period is a time for the government to give out palliatives, not widen its tax net.

What do the multiple changes and challenges in 2020 mean for MSMEs?

In a recent tweet on his handle, Partner & Chief Economist at PwC Nigeria, Andrew Nevin (Ph.D.) noted that the current circumstances will stifle the entire economy and constrain MSMEs from growing, as it is quite difficult to grow in an economy that is not growing.

GTBank 728 x 90

“… The complexity and cost of governance and the fiscal crisis is leading to a situation where successful companies in the tax net are subject to more and more taxes, which means they cannot grow and some companies in the formal economy will try to move back to the informal economy, further compounding the issue,” Nevin tweeted.

(READ MORE: CBN lists major constraints affecting businesses, as borrowing rates projected to rise )

Nevin also noted that even though the SMEs employ over 80% of the country’s workforce, the startups in Nigeria hardly get to the point where they are valued at over $1 billion. And this is because the uncertainties of doing business in Nigeria are quite high. Gokada, for instance, had a thriving business environment and was set to break even when the new policy was introduced banning motorcycles across major routes in Lagos. This, he said, shows the uncertainty of the business environment in Nigeria.

In addition, attracting global capital to scale a unicorn requires more money than are readily available for risky companies in Nigeria. The challenging business environment and the ‘reputation’ associated with the Nigerian flag makes it very hard to get sufficient external capital.

app

According to him, SMEs entering the formal sector means higher productivity and monitored payment of taxes. Yet, entry into the formal sector is still a choice most small businesses do not want to embrace due to the economic environment.

“… if the cost and complexity of entering the formal sector is too high, then the SME will elect to stay in the informal sector with all the attendant issues, including that they can be subject to harassment by the authorities,” he said.

(READ MORE:Innocent Chukwuma: From selling spare parts to manufacturing an indigenous automobile brand)

Coronation ads

He noted that the large SME sector arises partly from unemployment and people rushing into entrepreneurship as a means of livelihood; as well as the difficulties to grow a large and strong business.

“These type of statistics always tell us the sector is huge but it is huge because it is too difficult to grow big companies, so this is not a sign of strength. The best structure for the economy is to have strong large companies that then create room for SMEs to be part of their ecosystem.

“Large companies raise standards (look at quality of Dangote companies for example) and raise productivity and create opportunities for others so large SME sector is sign that business is too difficult because if Nigeria was functioning correctly, we would have 100+ Dangotes in the Economy,” Nevin tweeted.

Explaining the challenges of MSMEs in Nigeria, Chairman and Managing Partner at Ofuani Maidoh & Co, Clement Ofuani, noted that small businesses in Nigeria have more pressing challenges to deal with than the government-imposed fiscal burdens.

GTBank 728 x 90

Ofuani told Nairametrics in an interview, that the harsh and hostile operating environment makes for a more serious challenge for small businesses.

“Epileptic electricity power supply, inefficient transportation system and insecurity impose more operating costs on MSMEs than the fiscal taxes listed,” he stated.

Ofuani, who served as Senior Special Assistant to President Umaru Musa Yar’Adua on Policy, explained that the Finance Act waives income tax for companies with turnover below N25 million, thus granting fiscal reliefs to most small businesses.

(READ MORE: Nigerian firms expect to start employing again in August – CBN survey)

“The stamp duty on rental agreements and other agreements are additional burdens as is the increase of VAT to 7.5% but the below-the-table taxes paid by MSMEs in form of unreceipted ‘taxes’ to the security personnel along the transportation corridors, and to bureaucrats for normal government services are the greatest frustrations that make Nigeria uncompetitive in global commerce and as an investment destination,” Ofuani stated.

app

Amid all of these formal and informal challenges, it becomes very difficult for the small start-up to grow beyond its startup stage and become a big company.

The on-going pandemic and recent policies have done little or nothing to address these challenges and despite the palliatives, loans, and support schemes being launched by the government at various levels, most of these small businesses will still find their growth stunted by some of these “unreceipted taxes”.

Continue Reading

MSME

GEEP provides COVID-19 palliative microloans to 87,614 traders

The loans were in line with the government’s policies to reduce poverty and boost productivity.

Published

on

GEEP provides COVID-19 palliative microloans to 87,614 traders, Nigeria SME, LAPO, More than 40 SMEs in Lagos shut down due to economic crisis

The Federal Government of Nigeria, through the Government Enterprise and Empowerment Programme (GEEP), has provided a COVID-19 palliative relief loans to about 87,614 traders across twenty states. This was disclosed earlier today through a brief press statement that was made available via the government’s official Twitter handle.

According to the disclosure, the microloans have helped to reduce extreme poverty and encouraged productivity following the easing of the lockdown. Part of the statement said:

In line with the vision of the Nigeria Government to curb poverty and boost productivity in different parts of Nigeria, GEEP has provided palliative microloans to 87,614 petty traders hit by COVID19 pandemic in 20 states of the country in the first phase of disbursement.

These palliative microloans have helped petty traders revive their businesses, as the government eases lockdown measures nationwide. The second phase of the disbursement will target 412,386 petty traders across the country.”

READ ALSO: How Nike rejection birthed sportswear industry in Nigeria

GTBank 728 x 90

READ MORE: Alcohol Taxes: Heineken may need to shelve plan to increase beer prices

The Federal Government also announced that the second phase of the loans would be disbursed to a 412,368 trader across the country in a bid to restart economic productivity as the government eases the economic lockdowns that have heavily affected the informal and formal sectors.

Download the Nairametrics News App

The palliative schemes under the GEEP scheme include FarmerMoni, TraderMoni, and MarketMoni.

app
Continue Reading

FEATURED

FG releases new details on MSMEs support scheme, budgets N200 billion for loans

The Bank of Industry will also join to coordinate the implementation of the scheme.

Published

on

FG releases new details on MSMEs support scheme, budgets N200 billion for loans

The Federal Government has released new details on the Micro Small and Medium Enterprises (MSMEs) support scheme being rolled out under the National Economic Sustainability Programme.

According to estimates provided, the sum of N50 billion will be used to provide payroll support, N200 billion for loans to artisans, and N10 billion support to private transport companies and workers

The government disclosed in a tweet on the official handle of the government, the support scheme will include a Guaranteed Off-take Scheme for priority products, and an MSMEs Survival Fund.

READ ALSO: Covid-19: Timeline of every pronouncement made by Nigeria to support the economy

GTBank 728 x 90

Modalities for the take-off scheme

The first track is a Guaranteed Off-take Scheme which will ensure continued local production and safeguard 100,000 existing small businesses to save 300,000 jobs.

Priority products include processed foods, personal protective equipment, hand sanitizers, face-masks, face-shield, shoe-covers and pharmaceuticals.

The implementation committee chaired by Ambassador Mariam Katagum, Minister of the Federal Ministry of Industry Trade and Investment, will collaborate with private sector MSME associations to verify and screen applications from bidding MSMEs, define quantity and price of products required, and also get participants to join in the procurements.

READ MORE: How to access new N75 billion Nigerian Youth Investment Fund

SME survival fund

With a budget of N15 billion, the SME survival fund is expected to sustain 500,000 jobs in 50,000 SMEs.

Major sectors to benefit from the SME survival fund include hotels, restaurants, creative industries, road transport, tourism, private schools and export-related businesses.

app

The committee will identify eligible SMEs and screening and verification for this fund will be based on company registration, and tax registration. The implementation committee will approve disbursements through microfinance banks and fin-tech credit providers.

MSMEs that are unregistered will receive support to complete registration with the Corporate Affairs Commission (CAC), and all participants will be expected to make payments based on signed agreements.

The Bank of Industry will also join to coordinate the implementation of the scheme.

Coronation ads

The scheme will last 3 months with Ambassador Mariam Katagum as Chairman, while Ibukun Awosika, Founder of The Chair Centre Limited (TCCL), and First Bank Nigeria will serve as the Vice Chairman.

More details are to be released subsequently from the Implementation Committee.

The Backstory

In July 2020, the Federal Government announced plans to roll out a N2.3 trillion stimulus package and survival fund for Micro Small and Medium Enterprises (MSMEs) to stay afloat amid the economic challenges imposed by the pandemic.

The Vice President Yemi Osinbajo, who also heads the Economic Sustainability Committee, announced it at the 2020 edition of the Micro MSMEs Awards held virtually in July.

GTBank 728 x 90

To benefit from the scheme, MSMEs would have to go through a rigorous and painstaking verification process which will be based on certain criteria.

MSMEs that have between 10 to 50 staffs are qualified for this fund. The businesses must make their payroll available to the government for verification while applying for the fund. Once qualified, the MSMEs will be eligible to have their staff salary paid directly from the fund for 3 months.

Continue Reading
Advertisement
Advertisement
first bank
Advertisement
Advertisement
FCMB ads
Advertisement
Patricia
Advertisement
first bank
Advertisement
ccitraders
Advertisement
Heritage bank
Advertisement
beyondperception
Advertisement
devland
Advertisement
GTBank 728 x 90
Advertisement
financial calculator
Advertisement
Advertisement
deals book
Advertisement
app
Advertisement