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Financing for Small Business

A small business is “small” with limited capitalization and fewer options to raise cash to finance operations.



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Cash is the lifeblood of any business, especially a small business. A small business is “small” with limited capitalization and fewer options to raise cash to finance operations. It thus follows that cash management to record and control cash coming in and out of the business is of paramount importance. Everything about the small business must be structured to maximize cash operations, including retaining cash if possible, while ensuring that cash due to the business is collected as soon as possible.

The first consideration given to cash management is how the business is financed. If a small business is financed the wrong way, it will bleed cash. Too often, the only finance available to small businesses is bank loans, which is unfortunate. A bank loan taken too early by a small business will burden the business with interest costs, which will slow down growth.

Bank loans in Nigeria are expensive and determined on the possession of enough collateral. Many small businesses cannot afford to pay double-digit finance costs, nor do they possess enough collateral to secure funding from a bank. Small businesses must consider seriously the equity option in funding, especially in the early parts of the business life cycle.

Every business has four unique phases: Startup, Growth, Maturity and Renewal/Decline. In each of these stages, the type of finance needed by the business will change.

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Every business has the initial startup period of high growth, where their products or services are being evaluated in the marketplace, and if consumers like the offering, business sales start to grow and customers are added. At the growth stage, the business enters a period of rapid acceleration of sales, with operational growth. Activities become more scalable during this process.

When the business enters maturity, sales and growth will plateau, as the company reaches all her identified customers and/or competition reduces the company’s share in the market. Next, either the business reinvents itself, records growing sales and cash flows, or dies. What sort of equity financing can a small business explore at these stages?

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Startup Stage

At startup, the business is either at idea conceptualization or mapping, where the initial idea is being developed into a viable business plan for adoption by customers. The business at this stage has no clear laid down process, as everything is new. The risk of business failure at this stage is extremely high and lenders know this; thus, financing is a challenge. What sort of financing is useful here?

Founders’ own savings: The first person to fund business should be the founder(s)they created the idea, so they should put their own money in first. It’s also the cheapest form of finance available.

Family, friends and employees: If family and friends accept the business model and pay to use the product or service, then there is a possibility that the larger market will be accepting as well. This funding type allows the founder tap into the first local base of support, removing the need to make costly interest payments. How does a paid employee invest in a company? By accepting to work for equity in the business, instead of a salary. Founders and families and friends financing takes place at the startup stage.

Growth Stage

If a business has successfully navigated through startup and is now at the growth stage, the next form of financing is seed funding. Seed financing is raised by offering equity in the business, in exchange for cash. Seed financing can be done by families, friends, and by investors known as “Angel Investors.” Seed funding is generally used to support and sustain business growth. It generates cash flow to the business without a mandatory repayment with interest, as with traditional loans.

Series A: this is the first round of funding done by the business outside the tight closure of family and friends. Series A finance will come from angel investors, accelerators and micro venture capital firms, and is usually done via selling preferred stock to these investors.

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Series B: is intended to take the business to the development stage, and scale up and build market share. At the growth stage, the business has shown that it’s a viable business concern, duplicating best practices to generate revenues. Series b funding is done by venture capital firms.

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Series C funding: also called later-stage funding. This funding round occurs when the business has been successful in acquiring and retaining market share whilst remaining a viable going concern. This funding is usually to take the business public via a private or public offer; this is usually when the angels and venture capital firms exit via the public offer.

From founder to family & friends to series funding, these are all equity. Why? because it’s patient capital, equity that does not impose mandatory interest payments thus, allows the small business grow without the heavy burden of fixed repayments on loans.

But does the company need bank loans? Yes, to finance working capital, which is used in day to day operations, i.e. liquidity. While a business may be financed by equity sources, it may still require loans to fund certain operations like filling orders to customers. What are sources of working capital to an SME?

  • Bank overdraft
  • Bank loan
  • Equipment Finance
  • Invoice Factoring
  • Trade Credit

These finance sources are short-term in nature, repayable from cash generated from operations, and are specific in nature. In essence, they are self-liquidated from earning and are not designed to fund non-sales transactions like salaries.

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Many small businesses has died, either due to lack of financing or taking too much bank loans at the start of operations, without having the subsequent cash flow to cover these open positions. Granted, the private equity and venture capital space remain limited in Nigeria, but small businesses, especially startups, need to refocus initial capital raising away from debt into Debt/Equity.


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    In a hyperinflation economy like Nigeria’s, these are the best investments to consider immediately

    A deeper review of investments to consider amid the prevailing high inflation in Nigeria.



    Where to buy Real Estate in Lagos in 2021, Nigeria's Real Estate Sector recorded positive growth after three year low, Real estate: Declining credit reflects underlying weakness 

    Let’s face it, Nigeria’s rising inflation plus lower options for high yielding investments are already driving a significant number of investors away from Africa’s leading frontier market. This is coming at a time when Nigeria’s top performing investment asset class for 2020 is currently having a year-to-date return of around -3.30%.

    Recent data published by the National Bureau of Statistics (NBS) reveals Nigerian inflation rate surged to a 33-month high, as it rose further to 16.47% in January 2021 from 15.75% in December 2020. This is marks 17th consecutive month of rising inflation in the country.

    Consequently, Nairametrics interviewed selected financial experts on the investment options best suitable for such macro.

    That being said, it’s important to note that there are no guarantees when it comes to investing during high inflation. At best, such investments may be inflation-safe, but returns can never be guaranteed.

    READ: The Nigerian economy is increasingly dollarized but there is a way-out

    Debo Adejana, MD/CEO, Realty Point Limited, Chairman, REDAN South West Zone.

    At 16.5% inflation rate as of January 2021, the obvious is that there are very little short-term investments that can outperform that especially in the short term. So, that being said, my traditional conservative disposition of the fact that the best investment term is the long-term.

    To make returns that will consistently be higher than 16.5% in short term investments will require very good knowledge of the asset class and share dedication.

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    If that is clear, then by my own understanding, the following are some of the possible investment areas or strategies to adopt with real estate being my most preferred asset class anytime:

    1. Financial player in a JV Property Development Scheme. This helps to save time and gives faster turnover of investment fund.
    2. Buying distressed property now, renovate, rent-out for 2years of more just to hold if necessary and sell after.
    3. Crowd owning/funding property deals
    4. Guaranteed rent discounting
    5. International property investment for positive cash flow and to enjoy foreign exchange appreciation

    All the above can be done as a large ticket investor or little fractional holder using a well-structured and regulated vehicle.

    READ: Real estate sector GDP positive in Q4 2020, but still in the woods

    Darlington-Morsi Onyemaka, Co-founder, Quba Exchange

    Inflation means that prices for things are rising, and as such the same amount of money buys less over a certain period of time. This in itself is especially not good for cash savings as the best way to manage inflation is by investing in instruments that give you a return higher than the current rate of inflation or at least one that keeps up with it.

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    The best kinds of assets to invest in during inflation are tangible assets that have fundamental values and as such, their worth measures up together with inflation. These assets include real estate, growth stocks, and commodities like food, crude oil, and gold (especially gold).

    On the flip side, one should avoid long-term fixed-income investments. This is because the value of the underlying security falls as investors tend to focus on higher-yielding alternatives when the interest rates of that instrument start rising.

    READ: FG says Finance Bill 2020 will check inflation

    Thelma Ugonna Ohiri-Anyanwu, CFA

    Inflation is the increase in prices of goods over a period of time, where a specific amount of currency will be able to buy less than before.

    In as much as inflation erodes the value of funds, this should not deter one from investing as some investment’s types are great hedge against inflation and helps to preserve capital. Some of such investments are Gold, REITs, real estate, commodities and a well-balanced stock portfolio.

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    Silas OZOYA, Founder/CEO SUBA Capital

    Inflation in many ways affect the general health of a countries economy and her citizens literally and the only way out of inflation is continuous and increased investments in local production, expansion of existing local businesses and enacting fiscal policies that would strengthen the currency of such country.

    To mitigate this, increased and persistent investment from all angles in Agriculture, local processing, and increased export would do a positive dent on our inflation rate and keep us far away from recession through job creation, wealth growth, food, and cash crop production at scale.

    Nigerian’s home and abroad should consider investments that support economic growth through investments in Agriculture and agro-allied ventures.


    Agriculture from my experience is one of the very few sectors that puts food on the table, employs people, and grows the value of your money against inflation all in one value chain.

    The general public, high net worth individuals, and Nigerians abroad should consider holding at least 20% of their asset portfolio in Agriculture and agro-allied investments.

    Angela Aya, Head, Institutional Sales at Alonati

    There are a lot of investment opportunities for both the wealthy and not so rich investors in Nigeria, investors desiring to get an income or return on investment. Some are the FGN Savings Bonds, Stocks, Real Estate, Gold, Cryptocurrency, Agriculture etc. However, below are some investments that offer inflation protection:

    Real Estate

    Investment in real estate has been profitable and remains lucrative especially in Nigerian urban cities.

    This investment however requires medium to high capital. Nigeria is still a developing Country in the world and the need for housing to match the Country’s increasing population size remains critical, as urban-rural migration continues to increase due to the neglect of development of the rural areas by the States and Federal Government.

    The value of land and property has continued to rise and will continue to appreciate due to the margin between demand and supply as the need for residential and commercial buildings in major cities remains high.


    Investing in gold has remained an agelong golden income space. The value of gold has continued to appreciate over the years because of the importance attached to it all around the world.

    Gold remains an important symbol of wealth and affluence, and can be purchased as bars, coins or jewelries and resold at a higher price over time.

    Bottom line

    A disciplined investor can hedge against inflation risks by investing in the following asset classes that often outperform during high inflationary climates.

    • Debo Adejina – Real Estate,
    • Darlington-Morsi Onyemaka – real estate, growth stocks, and commodities like food, crude oil, and gold (especially gold).
    • Thelma Ugonna Ohiri-Anyanwu, CFA – Gold, REITs, real estate, commodities and a well-balanced stock portfolio.
    • Silas OZOYA – Agriculture and agro-allied ventures.
    • Angela Aya – Real Estate & Gold.

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    Investment Tips

    Retail franchise investment next gold mine for Nigerian investors- CIG

    Retail franchise investment curbs unemployment  and create buffer for people looking for side hustle



    The Choice International Group (CIG) has tasked both unemployed and employed Nigerians to embrace retail franchise investment, as the initiative would curb unemployment in the nation  and create buffer for people looking for side hustle.

    In line with a recent FBDS Study, there are over 450,000 Nigerian career professionals with minimum investible funds of N1 million, looking out for investment opportunities.

    In the majority, these funds are looking for franchise type opportunities for ease of venturing and minimal failure risk.

    As far as CIG chairperson, Diana Chen, is concerned, such investor should look no further but consider the group’s retail franchise investment opportunity, which offers Nigerian community mouth-watering offer of owning Gree & Lontor retail stores.

    According to him, Gree is the world’s residential air-conditioner manufacturer, while Lontor provides high-quality, energy-saving and convenient rechargeable home appliances and lighting products for global consumers.

    He said, “Both brands have been built by the CIG into a world-class electronic retail chain in Nigeria opening no less than 20 brand shops in Lagos and Oyo over the last 18 months.

    “The sales performance of its existing stores in the country makes Gree & Lontor one of the most profitable businesses in Nigeria with yields of an average return on investment of 50% and above per annum.

    “CIG is offering investors the opportunity to own any of six regional logistics centres, or any number of Gree & Lontor brand shops in viable locations across Nigeria.

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    “It is the decision of the company to open up these opportunities to the investing public through a Franchise Retail partnership.”


    He added that the company has mapped out two investment models it says are simple, transparent, and hassle-free.

    “The first model involves only six regional logistics centres located across the geopolitical zones in Nigeria.

    “Whoever invests in this will require a capital outlay of $1 million, and become a mega distributor partner of the Gree & Lontor brand, and service a network of brand shops.

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    “The second investment model involves the Gree & Lontor brand shops – retail franchise stores that require an initial capital outlay of N20 million.

    “The investor will secure a store size of 120-150sqm at any choice location, shopping mall, plazas, high streets and even residential neighbourhoods.”

    What they are saying

    Nigeria is a growth market for franchising and franchise development services.

    Gbenga Ajayi, an Entrepreneurship analyst, said, “The retail industry comes second to the food industry among sectors with best franchising opportunities.

    “As with other emerging markets, one of the challenges of franchising in Nigeria remains the strengthening of intellectual-property regimes so that franchise companies can transmit knowledge and franchise system concepts with the confidence that such know-how will be protected.

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