Another interesting way of raising capital to acquire things like fixed assets in your business is to lease such assets. A lease is a legal contract allowing somebody exclusive possession of another’s property for a specific time in return for a payment. The word “exclusive” is very important. The lessee (the person or organisation that leases the property from the owner) has exclusive rights to the use of the property or asset during the life of the arrangement or agreement. However, there could be a special arrangement called lease-purchase agreement where the lessee is allowed to buy the asset, with the lease payments counting towards the purchase price. This is similar to hire purchase.
17. Trade by Barter
The question that comes to your mind is that, do companies/people still do trade by barter today? The answer is yes. We all know what trade by barter is, don’t we? Barter is the practice or system of exchanging goods or services in return for goods or services. If you are a corporate car wash business, you can ask a car company to outsource its car washing services to you in return for a car, not money. The contract will last as long as you are yet to pay off the amount of the car with your services. In this case, money hasn’t changed hands but services/goods have. So, look at your business and ponder on areas that you can barter your goods for goods that you need or services for services that you need.
18. Mergers and Acquisitions
As a small business, you become part of a larger business or corporation and enjoy the resources, branding power and financial muscle of the large enterprise when you merge or allow yourself to be acquired by such a business. Rather than die a small company, by merging with a bigger company, you stand the chance of improving your competitive ability in your own immediate industry and accessing the large pool of human capital, expertise, knowledge and finance of your bigger partner to grow or expand your business operation. Though a technical area, it is a possible option for many organised and well-run SMEs.
19. Joint Ventures
Instead of merging, some firms have tried to bolster their business clout through joint ventures with competitors. Because these arrangements eliminate competition in the product areas in which companies agree to cooperate, they can pose the same threat to the market by creating monopolies in such areas. However, joint ventures are one way even businesses not in the same industry can partner to implement a business idea or achieve a business objective. I know a bank in Nigeria that entered into a JV relationship with a furniture manufacturing company. Many banks and financial institutions have entered into one form of JV or the other. This brings the strengths of the two or more partners together and reduces or eliminates their weaknesses.
20. Entrepreneurship Supporting Banks and Institutions/Industrial Banks
Your business start-up can also be provided with capital by entrepreneurship supporting banks or institutions like Bank of Industry in Nigeria, Nigerian Agricultural Cooperative and Rural Development Bank (NACRDB), SME finance companies among others. Industrial banks are usually much more amenable to making business loans available to SMEs than regular banks, so be sure to check out these institutions like the BOI. Insurance companies are prime sources of long-term business capital, too, but each company varies its policies regarding the type of business it will consider. Some banks and institutions usually set apart funds to support entrepreneurship. Their terms are usually flexible; these institutions or banks usually request a stake in the new venture and whereby a stake is not requested, they may grant the small business start-up a longer repayment period.
21. Investment Bankers/Capital Market Operators
When all avenues have been exhausted, you can approach investment bankers to provide you with the capital you need. They have the capacity to raise capital for you from the general public. But for this approach to be successful, you must be willing to give up ownership and sell some stakes to the public through an IPO.
22. Incorporating Your Small Business
Many entrepreneurs decide to incorporate their businesses for the purpose of raising capital for small business expenses. When you incorporate your small business, you will be able to sell shares. However, when you sell shares of the business, you will also be selling a percentage of the ownership of the business. So if you sell 50% of your corporation’s shares, you are selling 50% of the business ownership except you have to increase the authorised share capital and this you cannot do without the consent of your shareholders.
23. Bootstrap
When none of the other options are viable or available, bootstrap your way to success. Put all or most of the profits of your business right back into it until it becomes self-sustaining. Bootstrapping can feel like a thankless activity for quite some time. It can break the spirit of some entrepreneurs who would have loved to start reaping the fruits of their business success. But if you believe in your business that much, then don’t starve it of the funds it needs: Invest, reinvest and reinvest until the business can become really competitive in the marketplace. And at that time, you can reap from the proceeds the business will keep churning out for you.
Well, it’s been a long journey trying to unravel non-banking ways by which SMEs can fund their business for expansion, supply of working capital, acquisition of assets and for business refinancing purposes. I believe very strongly that you have benefitted from these write-ups and that your arsenal for raising capital is rich enough for you to try many alternatives now.
Another interesting way of raising capital to acquire things like fixed assets in your business is to lease such assets. A lease is a legal contract allowing somebody exclusive possession of another’s property for a specific time in return for a payment. The word “exclusive” is very important. The lessee (the person or organisation that leases the property from the owner) has exclusive rights to the use of the property or asset during the life of the arrangement or agreement. However, there could be a special arrangement called lease-purchase agreement where the lessee is allowed to buy the asset, with the lease payments counting towards the purchase price. This is similar to hire purchase.
17. Trade by Barter
The question that comes to your mind is that, do companies/people still do trade by barter today? The answer is yes. We all know what trade by barter is, don’t we? Barter is the practice or system of exchanging goods or services in return for goods or services. If you are a corporate car wash business, you can ask a car company to outsource its car washing services to you in return for a car, not money. The contract will last as long as you are yet to pay off the amount of the car with your services. In this case, money hasn’t changed hands but services/goods have. So, look at your business and ponder on areas that you can barter your goods for goods that you need or services for services that you need.
18. Mergers and Acquisitions
As a small business, you become part of a larger business or corporation and enjoy the resources, branding power and financial muscle of the large enterprise when you merge or allow yourself to be acquired by such a business. Rather than die a small company, by merging with a bigger company, you stand the chance of improving your competitive ability in your own immediate industry and accessing the large pool of human capital, expertise, knowledge and finance of your bigger partner to grow or expand your business operation. Though a technical area, it is a possible option for many organised and well-run SMEs.
19. Joint Ventures
Instead of merging, some firms have tried to bolster their business clout through joint ventures with competitors. Because these arrangements eliminate competition in the product areas in which companies agree to cooperate, they can pose the same threat to the market by creating monopolies in such areas. However, joint ventures are one way even businesses not in the same industry can partner to implement a business idea or achieve a business objective. I know a bank in Nigeria that entered into a JV relationship with a furniture manufacturing company. Many banks and financial institutions have entered into one form of JV or the other. This brings the strengths of the two or more partners together and reduces or eliminates their weaknesses.
20. Entrepreneurship Supporting Banks and Institutions/Industrial Banks
Your business start-up can also be provided with capital by entrepreneurship supporting banks or institutions like Bank of Industry in Nigeria, Nigerian Agricultural Cooperative and Rural Development Bank (NACRDB), SME finance companies among others. Industrial banks are usually much more amenable to making business loans available to SMEs than regular banks, so be sure to check out these institutions like the BOI. Insurance companies are prime sources of long-term business capital, too, but each company varies its policies regarding the type of business it will consider. Some banks and institutions usually set apart funds to support entrepreneurship. Their terms are usually flexible; these institutions or banks usually request a stake in the new venture and whereby a stake is not requested, they may grant the small business start-up a longer repayment period.
21. Investment Bankers/Capital Market Operators
When all avenues have been exhausted, you can approach investment bankers to provide you with the capital you need. They have the capacity to raise capital for you from the general public. But for this approach to be successful, you must be willing to give up ownership and sell some stakes to the public through an IPO.
22. Incorporating Your Small Business
Many entrepreneurs decide to incorporate their businesses for the purpose of raising capital for small business expenses. When you incorporate your small business, you will be able to sell shares. However, when you sell shares of the business, you will also be selling a percentage of the ownership of the business. So if you sell 50% of your corporation’s shares, you are selling 50% of the business ownership except you have to increase the authorised share capital and this you cannot do without the consent of your shareholders.
23. Bootstrap
When none of the other options are viable or available, bootstrap your way to success. Put all or most of the profits of your business right back into it until it becomes self-sustaining. Bootstrapping can feel like a thankless activity for quite some time. It can break the spirit of some entrepreneurs who would have loved to start reaping the fruits of their business success. But if you believe in your business that much, then don’t starve it of the funds it needs: Invest, reinvest and reinvest until the business can become really competitive in the marketplace. And at that time, you can reap from the proceeds the business will keep churning out for you.
Well, it’s been a long journey trying to unravel non-banking ways by which SMEs can fund their business for expansion, supply of working capital, acquisition of assets and for business refinancing purposes. I believe very strongly that you have benefitted from these write-ups and that your arsenal for raising capital is rich enough for you to try many alternatives now.
