Did you know that the world is filled with brilliant ideas that have potential to generate money / profits, create jobs and re-distribute wealth. Owning a business is one of the most rewarding ventures. We all want to become business owners and be free to enjoy the fruits of our labour. There are very many business ideas and many have been discussed in other posts here.
Well, if you are one of those that are constantly basking in the euphoria of developing a winning business idea; then you may need to have a rethink because having a good business idea is one thing, but the process of executing and turning your idea into a business opportunity is a different ball game entirely. This process can never occur without MONEY. Raising capital is and will remain the biggest challenge facing potential business owners all over the world. With all those brilliant ideas or excellent expansion plans, without a reliable source of funding, nothing will ever get done.
Having chosen your best thought out idea, worked out a business plan and done your market research and feasibility study, the final step is to get a source of funds to enable you launch your business successfully. There are several sources of funds you can access to start your business. Your budget will mainly depend on your business idea. We will discuss a few sources of funds many entrepreneurs have successfully used to set up their businesses.
Personal Savings
Money put aside regularly either from salary, earnings from business or other ventures may constitute personal savings. This is the money you have actually saved after your expenses. It is your money and you have free access to it without any conditions. In some cases, retrenchment packages, termination pay out or pension packages may be considered as personal savings in many ways. This is the cheapest form of business funding since you will not have any conditions on how to access it and you are not obliged to pay it back, it is all yours!
Read:Â The Most Profitable Ventures You Can Do With Kes 5,000 in 2016
Personal savings can be a very good source of business funding. With all its benefits of not paying back and ease of access, it remains one of the most popular sources of funding especially for small and medium businesses all over the world. So if you are gainfully employed or in business, consider saving a portion of your earnings regularly for future business set up or expansion of current business.
Relatives and Friends
If you have a brilliant business idea but you have little or no personal savings, you can turn to close family members, your relatives or friends for funding. This is the situation where one or several members of your family or friends give you money to start your business. The advantage with this source is that it may be easy to approach your family and friends and some may not give you very stringent conditions either for accessing the money or paying back.
If you are lucky, some family members such as your parents may fund your business start-up without expecting to be paid back, especially if they are wealthy. Some wealthy or well off close family members or friends may also choose to fund you without conditions. Others may require you to pay back but may still be lenient enough to let your business pick up and succeed. It is therefore important to cultivate and maintain a good relationship with your family members and close friends. They may be your next source of funding if you ever come up with a brilliant idea.
Saccos
Savings and Credit Co-operative Societies (Saccos) have become popular for those who want to save and later borrow some money. In Kenya, most of these societies are regulated by the Sacco Societies Regulatory Authority (SASRA), a statutory state corporation established under the Sacco Societies Act (Cap 490B) of the Laws of Kenya. Majority of them are formed by people who are within a common bond such as a common employer or sector. These can only recruit members from such bonds. Others are formed recruit members from all walks of life. Many others, such as Stima Sacco, have opened membership to people from all walks of like, even though they were formed for members within a common bond.
As a member, you will have save a certain amount of money regularly and you are eligible to borrow an amount mostly three times of what you have saved. Your loan must be guaranteed by other members. Most Saccos will expect you to pay back the loan at interests rates of between 1-1.5% per month over a period of 3 to 5 years. Saccos are some of the cheapest lenders you can engage to fund your business idea or expand your existing business. If you have not join a Sacco, better shop around for the one that meets your needs and join very fast.
Microfinance
In Kenya, we have deposit taking institutions licensed to open accounts and take deposit from members of the public. These institutions encourage people to form groups and regularly save money and later borrow. They also allow individual members to open accounts and save with them. As a member, you can also borrow but most of the institutions will require you to get guarantors. Their interest rates are the same or slightly higher than Saccos but the process of accessing the loan can be very rigorous.
If you are not currently saving with any such institution, it is advisable to look around and settle on one that will be acceptable to you. Faulu and Rafiki are some of these institutions. There are many others all over the country. Shop around and join these institutions and have access to funds to actualise your business idea.
Angel Investor
This is normally a private individual with the resources to invest in small, medium or even big businesses. The angel investor is normally attracted to start-ups, and financial losses are usually expected in the first year or two. An angel investor will expect to get intimately involved in the running of your business and will expect to make decisions regarding the direction and future of the business.
You can sell your business idea to those you think have the resources to invest in it by coming up with an elaborate business plan and doing a very good research and feasibility study.
Commercial Banks
Many commercial banks give short term and long term loans to account holders or any body else who can meet their conditions. Bank have very strict conditions for loans and many potential business people shy away from using this as a source of funding unless the capital needed is very substantial. Many banks will require some form of security for their loans. A title deed for your land or house and a motor vehicle log book are some of the common forms of security required by banks to apply for a loan. Some banks may advance you an unsecured loan, based on your salary, if you are in a permanent employment in some selected companies or civil service.
Bank loans are very expensive and are not the best sources of funding for start-ups, especially if the capital is not very high. Interest rates range from 10% to as high as 25% per year depending on the bank and security. This may be so high a cost to bear, although at times it may be the only option. Most commercial banks will not expect you to have saved any money with them to secure a loan, the only requirement is to meet their stringent conditions.
Now you know some of the most popular sources of funding you can use to set up your business. What are you waiting for? Go for one that meets your requirements and is accessible to you. Don’t be left behind, many brilliant ideas are being turned into profitable ventures and yours can too, and please don’t forget to share with others.