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A look at some financing options for small business owners

A look at some financing options for small business owners
#SME #MSME #Entrepreneur



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Statistics show that 80 per cent 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 a coup de grace to small businesses. Thus, to aid startups and small businesses, we have put together a number of ways by which business owners can raise the much-needed capital they require to start, sustain, and scale their businesses.


Bootstrapping essentially refers to financing a startup by self-funding. It may, however, also include raising seed funds from friends & family. This is typically the most common route adopted by entrepreneurs. Bootstrapping is advisable for startups which are still in the ideation stage, or in the very early stages of idea development and proof-of-concept testing.

It enables founders and entrepreneurs the independence to decide the use of funds, eliminates external pressure on major business decisions, etc. It allows entrepreneurs to test their ideas, make mistakes, understand their markets & industries, garner experience, etc., without the heightened stakes that come when a business is accountable to shareholders and investors.

However, bootstrapping is limiting, as larger capital injections are usually required for businesses to scale-up and scale quicker. In addition, fringe benefits that accompany external investments, such as access to investors’ network, investors’ strategic & financial foresight, etc., may not be available to startups that are being bootstrapped.

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It is usually advisable for startup founders to opt for the bootstrapping route as a first resort, as it helps them easily convince investors of their commitment later on, while providing them with insights on the realities of their industries and target markets, and a foundation of traction with which to sway potential investors.

Angel Investment

An angel investor is a wealthy individual, or one with surplus funds, who provides capital to startups and small businesses (usually in their early stages), in exchange for equity or convertible debt. This means that the angel investor becomes a part owner of the business.

In the case of convertible debt, it implies that the angel investor is afforded the opportunity to convert his/her debt investment (i.e. the loan) into a specified quantity of shares in the business. Angel investors typically have a pre-determined exit strategy, whether via an initial public offering, an acquisition, or a management-led buy-out of some sort.

Many blue chip companies today were beneficiaries of angel investments in their early stages– the likes of Facebook (with Peter Thiel as an early stage investor), Google, PayPal, Yahoo, etc.

Angel investors can typically be found anywhere, as the qualities of an angel investor are not exclusive to a select few; the person should essentially:

  • have surplus personal funds at his/her disposal, and
  • be willing to invest in a startup or small business.

Angel investors tend to operate in networks, as this enables them network amongst themselves, receive prime information on potential unicorn startups and also to make co-investments; with the most prominent angel investor network in Nigeria being Lagos Angel Network (LAN). Other angel investors in Nigeria include Dotun Olowoporoku of Starta, Bosun Tijani of CCHub, Summy Smart Francis of AYE (Africa’s Young Entrepreneurs).

Venture Capital

Startups and small businesses can also raise funds from venture capital firms. A venture capital firm is a finance firm that specialises in financing small businesses and startups, which are estimated to have high potentials for growth. Venture capital investing typically entails investing in innovative businesses, that the VC believes have “unicorn potential”, i.e. have the inherent capacity for high growth and blue-chip status.

Venture capital investing is becoming increasingly popular in Nigeria, with a number of VCs having made notable investments in notable Nigerian startups thus far. Prominent VCs in Nigeria include the likes of Echo VC (with portfolio investments such as,, LifeBank, Printivo), Investment One Vencap (with portfolio investmens such as Versecom, HenryWarleys), Microtraction (with startup companies such as Cowrywise, Riby, accounteer and thankucash in its portfolio), Greentree Investment Company, Ventures Platform, amongst many others.

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[Read Also: After securing funding, how does an investor profit from your startup?]

Typically, different VCs have different investment policies regarding the nature of startups they are interested in funding – this could encompass the sector, stage, business & revenue model, etc., of the startup. VCs usually have a predetermined exit strategy mapped out before they embark on any investment.

With VCs, the stakes are usually high, as they expect their portfolio companies to DELIVER RESULTS – tangible growth, customer turnover, revenues, etc. Thus, startups are advised to be careful when opting to take the route of VC funding and only partner with a like-minded VC, so that the philosophies and vision of the startup and the VC would be in sync.

Accelerators, Incubators and SME Support Organisations

In recent times, we have seen the rise of accelerators and incubators in the Nigerian starup 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.

Accelerators typically provide funding to their portfolio companies (usually taking equity stake), and in some scenarios even provide equity-free support. However, incubators and SME support organisations do not directly provide funding, though they provide business owners with the knowledge and insight to run their businesses effectively, such that they are better positioned to raise funding.

Bank Loans

One obvious way by which money can be raised is through bank loans. Banks exist essentially to provide loans to businesses. This is probably the second most popular way by which businesses in Nigeria raise needed funding (the most popular being bootstrapping). However, business owners are advised to be cautious when opting to approach a bank for funding, to ensure that they are capable of meeting the terms of the loans.

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Businesses must be very certain that their cash flow would be able to finance the servicing of the loan, or at the very least have sufficient assets which can be disposed in order to finance the loan. In addition, it is advisable that loans are only taken in order to finance activities that are capable of generating sufficient revenue returns to the company this way, as opposed to borrowing for consumption.


Microfinance Banks and Finance Houses

Similar to commercial bank loans, but tailored towards individuals and small businesses, are microfinance banks and finance houses. These are financial institutions that are able to tend to the micro-lending needs of small-scale businesses and who typically provide loans at lower costs to borrowers. Finance houses include institutions such as RenMoney, Page Financials, Orange One Finance, Zedvance, Sparta Capital, etc.


Crowdfunding is a means by which a business raises money through contributions of small amounts by a large number of individuals, usually through crowdfunding networks online. In this way, crowdfunding can be said to bear resemblance to an Initial Public Offering (IPO), as the contributors (known as “backers”) would receive shares in exchange for the money they pledge.

However, not all crowdfunding campaigns are equity-based; some are reward-based, i.e. the backers receive a product or service in return for their contribution. Reward-based crowdfunding is a way by which a business can raise funds, without having to give up any equity.

Although overwhelming majority of crowdfunding campaigns are, however, towards non-profit activities – usually donations to help or support individuals in need of personal financial support, crowdfunding is yet another measure that can be exploited by small businesses seeking financing.

The crowdfunding space remains infantile and largely untapped, however, there are a couple of Nigerian crowdfunding platforms that can be explored by startups seeking financing, such as and Meanwhile, on a global scale, crowdfunding has garnered massive popularity, with businesses such as Oculus Rift, The Dash, Canary Smart Home Security and Bitvore, having been beneficiaries of successful crowdfunding campaigns on platforms such as Kickstarter and IndieGoGo.

It is important to note, however, that crowdfunding campaigns are not a sure bet, i.e. there is no guarantee that a crowdfunding campaign will hit its target or even garner momentum, especially given the current infantile state of crowfunding in Nigeria.


Grants are funds that are dispersed to individuals or organisations, which do not invoke clauses of repayment. Grants are typically referred to as “free money”. In this context, they encompass all non-repayable funds that are available to startups and small businesses, such as government grants (like the YouWin Connect), seed fund grants from accelerators, incubators & SME support organisations (such as from the Tony Elumelu Foundation), cash prizes from SME business pitches, contests or showcases, etc.



  1. RJ

    March 1, 2019 at 8:45 am

    Very resourceful, I found this very useful. However may I stare that Youwin connect participants were not given any funding. We have fought for the past year to be funded but the government has denied ever promising us funding. Therefore that part of this write-up is misleading.

  2. RJ

    March 1, 2019 at 8:46 am

    Very resourceful, I found this very useful. However may I state that Youwin connect participants were not given any funding. We have fought for the past year to be funded but the government has denied ever promising us funding. Therefore that part of this write-up is misleading.

  3. Joan

    October 19, 2019 at 12:19 am

    I agree with the methods of raising funds but I have a strong no no at VC.
    They tend to want referral even due you have a great business. They are not mostly after growth but profits.

    Jumia for example was started by two individuals but sold out.

    If you notice there are next to known business that go globally.

    They are mainly localised. Now also look at paystack they got there funding from silicon valley now they are global.

    Do you see the difference

  4. Tope

    October 19, 2019 at 6:31 am

    Most of these are not true in the Nigerian context. Summy Smart of AYEs is fake. There are no working crowdfunding platform in Nigeria because the people you are trying to raise money from are also struggling. Nigerian Banks do not borrow manufacturing startups or SME money. The only SME they borrow money are idumota/ABA importers with 60days/90days overdraft or purchase financing with heart pounding interest rate. You cannot even get financing for purchase of equipment. Bootstrapping and angel investors are still the way to go in Nigeria for SME.

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DEVALUATION: CBN updates website to official rate of N360/$1

The central bank of Nigeria has devalued its official exchange rate from N307/$1 to N360/$1.



CBN website states oil price is still $61, Naira under pressure as Nigeria records poor export earnings, 4 key sectors the CBN plans to pump money into

Just as Nairametrics reported, the Central Bank of Nigeria has devalued its official exchange rate from N307/$1 to N360/$1. The apex bank has now reflected this change on its website signaling a confirmation. The bank is yet to issue a press release to this effect.

The CBN has now officially devalued by 15% moving from N307/$1 to N360/$1. Depreciation at the “market-determined” I&E window is 5% having moved from N360/$1 to N380/$1

Devaluation: Nairametrics reported yesterday that the Central Bank of Nigeria (CBN) sold dollars to banks at N380/$1 in a move signifying a devaluation of the currency. Banks trading at the Investor and Exporter (I&E) window bought dollars at N360/$1 from the CBN on Friday, March 20, 2020. The I&E window is the official market where forex is traded between banks, the CBN, foreign investors, and businesses. The central bank typically buys or sells in the market as part of its intervention program.

The CBN has updated its website with the official exchange rate.

Nairametrics also got hold of a letter from the CBN to banks informing them of the new exchange rate for dollars flowing from the International Money Transfer Operators (IMTOs). According to the CBN, IMTOs will sell to banks at N376/$1 while banks will sell to the CBN at N377/$1. The CBN will sell to BDC’s at N378/$1 while the BDC’s will sell to end-users at “no more than” N380/$1.

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Single Exchange Rate: A report yesterday also suggested that the CBN also planned to move to a single exchange rate policy for determining the price of the dollar. A senior central bank official who does not want to be identified, said, ‘Today we allowed the rate at the importer and exporters (I&E) window to adjust in response to market developments.’

The central bank has now made an apparent u-turn after it had initially that the “market fundamentals do not support naira devaluation at this time” detailing reasons why it did not need to devalue.

Falling oil price: Oil prices fell to under $20 on Friday before climbing back up to settle at $23 per barrel. Nigeria’s Bonny light trades at $26 while the benchmark Brent crude trades at $29 per barrel. In response to the crash in oil price, Nigeria’s announced a cut to its 2020 budget by N1.5 trillion as it faced the reality of a potential drop in its revenues. Nairametrics also has information that state governments are getting jittery about their ability to sustain salary payments as a reduction in their federal allocation “FAAC” is anticipated.

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Career tips

Investment options for salary earners

Investment options for the salary earners
#Investing #Entrepreneurs #Investment #Salary #Wages



Investment options for salary earners - bank loan

Recently, one of the readers of my articles asked to know what investment options are open to salary earners. A salaried individual is like everyone else except that he or she has a fixed monthly income. This implies that their investments and expenses have to be managed strictly according to their fixed monthly income.

Since salary is assumed to be the only source of income for the salaried, it is advisable that such an individual fortify himself financially before investing so that adverse investment performance will not have untold effect on him and his family. Therefore, if you are a salaried prospective investor, you need to:

Get life insurance

Most families in Nigeria are single income families so much such that if anything bad happens to the income earner, the family gets shattered, at least financially. Again, given the risks inherent in capital market investments, it is only prudent to have a life insurance as a first step in one’s investment journey. It is very baffling to see many investors very deep into the market, yet they do not have life insurance.

[Read Also: Understanding the risks in bond investing]

Life insurance is and should be a basic part of any financial plan. Life insurance is a protection for loved ones against financial hardship arising from the death of a breadwinner. This is even more important today than ever before with high cost of funeral expenses, college education and medical bills. So, the first investment option for a salaried individual is to get a life insurance.

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Prepare for financial emergencies

Life is full of surprises, emergencies do happen, jobs are lost without notices, and even good investment opportunities emerge sometimes suddenly. There is, therefore, the need for a cash reserve to help weather the financial storms and emergencies when they come calling.

Cash reserves do not only provide for emergencies, they also help to ensure that investments are not liquidated prematurely or at inopportune times to cover unexpected expenses. There are no hard and fast rules on what the exact amount of the required cash reserve should be, but most financial experts and planners will advise that an amount that equals about six months of living expenses be set aside.

So, as a salaried person, your next investment should be to have a cash reserve. A cash reserve should not necessarily be in a savings account or under the mattress; it could be in an interest-bearing money market account, money market mutual funds with low to zero luck-up period or another form of very liquid investment that is readily convertible to cash without loss of value.

[Read Also: Understanding the risks in bond investing]

Know your risk appetite

As a salaried and fixed income individual, your risk appetite is most likely going to be low as well as your risk tolerance, although your extended family profile could change all that. You need to know or understand your risk tolerance before you engage in any capital market investment.

Your risk tolerance will and should drive the type of investments you go into. Your risk tolerance depends on your psychological makeup, your current insurance coverage, presence or absence of cash reserve, family situation, and your age among others.

Talking about family situation, it is reasonable to think that a married individual whose children are still in school will be more risk averse than an unmarried person. On the other hand, older people have shorter investment time horizon within which to make up for any losses. the reason for this is because the older you get the less time you have to work to recoup on losses.

In that case the risk tolerance of an older man will be less than those for younger folks. Again, the more cash reserve and insurance coverage you have, the more your propensity to take risk. Now having known your risk tolerance based on the underlying factors, you can then define your investment objectives

[Read Also: Important tips on how to profit in a bearish market]

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Set your Investment objectives/goals

Having met those essentials above, you are now ready for a serious investment plan or program. A good investment plan starts with investment objectives. Investment objectives are the force that determines what you invest in. Investment objectives range from capital preservation, to capital appreciation and constant income generation.

Capital preservation as an investment objective implies that you, the investor, aim at minimising the risk of loss by maintaining the purchasing power of your investment. So, if you are risk averse or you will need money from your investment soon for children’s education or for building a house or you are nearing retirement, this should be your objective.

Investors whose aims are to see their investment portfolios increase in real terms over a period of time are better suited for capital appreciation as an objective. This is better for investors that are more risk tolerant and those with more potential to recoup on losses along the way.

If you are already retired or nearing retirement, and therefore depend on your retirement plan supplemented by investment income, you need an investment that generates income rather than capital gains. In that case, your investment objective should be current income generation. It is always good to have investment goals stated in terms of risk and returns.

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Decide on asset allocation

Armed with the knowledge of your risk appetite and investment objective, you are now ready to decide on what to invest in, and how much to invest in any asset class. This takes you to asset allocation decisions. Asset allocation involves dividing an investment portfolio among different asset classes based on an investor’s financial requirements, investment objectives and risk tolerance.

A right mix of asset classes in a portfolio provides an investor with the highest probability of meeting his/her investment objectives. Asset allocation is the most important investment decision an investor can make in a portfolio because it demonstrates an investor’s understanding of his or her risk preferences and return expectations.

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It is good to strive for a diversified portfolio. Unfortunately, the Nigerian market does not provide a lot of asset classes for optimal diversification, but diversification can be achieved across sectors or industries within the few asset classes in the Nigerian stock market.

Decide on how to invest

There are different ways to invest in the capital market. You can invest directly by making the stock selections by yourself, thanks to the online stock trading platforms that abound the world over. This implies that you have what it takes to conduct the required research and analysis of the companies whose shares or stocks you wish to buy.


[Read Also: How I Would Invest My Mother’s Retirement Funds]

It also implies that you have what it takes to know when to sell or add to existing positions. Another method is to have someone “do the heavy lifting” for you. In this case, that someone, often times called fund manager or portfolio manager, does the research and analysis and selects shares that suit your investment preferences, investment objectives, risk tolerance and appetite as well as your investment time horizon.

This route is most suitable for investors that lack the knowledge and time for the required research and analysis. If you decide to go this route, mutual funds are the best bet for you.

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Atiku kicks as Buhari spends $3.7 billion in foreign debt service since 2015



Budget: FG completes just 31.7% of constituency projects, Nigerians react to President Buhari's signing of Finance Bill 

The Buhari led government has spent about $3.7 billion in foreign debt service since 2015, one of the highest from any democratically elected government. The highest single-year foreign debt service was in 2006 at $1.79 billion.

About 68% of Nigeria’s foreign-denominated debt servicing is in commercial Eurobonds issues over the last two years. The loans range between 5.1% and 9.2% per annum. Nigeria’s external debt stock stood at $27 billion in June 2019.

Rising debt service: The Buhari administration has so far spent about $1.1 billion in foreign debt service this year. In 2018, the government spent about $1.4 billion in debt service, more than 3 times the $444 million it spent servicing foreign debts in 2017. The rising cost of debt service is a direct attribute of the government’s reliance on foreign loans as a means of funding government expenditure.

Debt service since 2003. Source: CBN. Nairametrics Research (C)

Foreign Loans: Nigeria’s fallen revenue following the crash in oil price has allowed President Buhari to rely mainly on foreign loans to fund government expenditure. As of June 2015, Nigeria’s foreign loans were about $10.5 billion mostly made up of multilateral and bilateral loans.

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However, by June 2019, total foreign-denominated loans were $27 billion with $10.8 billion made up of Eurobonds. Commercial loans which include Eurobonds and Diaspora bonds make now make up about 42% of total foreign borrowings.

[READ ALSO: Babatunde Fowler attributes FIRS success to technological innovation (Opens in a new browser tab)]

Critics of the government have complained about the government penchant for debts believing that it could put the future of younger Nigerians in jeopardy. Supporters of the government, however, believe the borrowing was necessary to invest in critical sectors of the economy particularly infrastructure.

Recently, Director-General of MAN, Segun Ajayi-Kadir expressed worry about Nigeria’s rising debt.

“….the rising debt profile of Nigeria continues to be a cause for concern, especially the capacity of government to effectively service it and, at the same time, meet the bursting needs and aspiration of the citizenry going forward.” 

“Already, our budget projections for 2020 anticipates a debt service sum of 2.45trillion, an amount higher than the 2.14 trillion earmarked for capital expenditure. 

“And even though our debt-to-Gross Domestic Product (GDP) ratio, which currently stands at 28 percent, is still below the average in Africa, our revenue-to-GDP ratio remains low.”

The Finance Minister Zainab Ahmed however, believes the current debt profile is sustainable, comparing it to our GDP.

“Currently, Nigeria’s debt is at N25 trillion; that is about $83 billion. And at $83 billion, we are just at 18.99%…so 19% debt to GDP. I hear people say Nigeria has a debt problem. We don’t have a debt problem. What we have is a revenue challenge and the whole of this government is currently working on how to enhance our revenues, to ensure that we meet our obligation to service government as well as to service debt.”

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[READ ALSO: Babatunde Fowler attributes FIRS success to technological innovation (Opens in a new browser tab)]

Former Vice President and defeated PDP Presidential aspirant, Atiku Abubakar during the week piled criticism on the government’s borrowing.

“I have said it time and again. The business of government is too serious to be left in the hands of politicians. We must all ask questions because if they throw away the future, it is not going to be their future they are throwing away, it will be all our futures.

“The fact that Nigeria currently budgets more money for debt servicing (N2.7 trillion), than we do on capital expenditure (N2.4 trillion) is already an indicator that we have borrowed more money than we can afford to borrow. And the thing is that debt servicing is not debt repayment. Debt servicing just means that we are paying the barest minimum allowable by our creditors.

What this means: Nigeria’s rising foreign debt profile should be a worry to investors and businesses and must be watched closely. The country’s ability to repay these loans will continue to be harder as it increases especially now that it is costing about 9%. The immediate risk for investors is the exchange rate which could be the first to suffer should the government struggle to repay its loans.

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