“Hello Kuza Biashara, I have this burning business idea but the problem is that I don’t have the capital to start.” – This is quite a common question on our social media platforms nowadays. Indeed, lack of capital is one of the biggest causes of small business failures in Kenya and across the world.
So where is the money Kuza Biashara? You might want to ask…
Answer: The money is out there, it’s just upon you to identify the right places to look for it. You first identify which source of funding is best suited for the various stages of your company’s growth and then follow up on it.
Where To Get The Capital To Start & Sustain Your Business
#1: Use Retained Profits
The term “retained profits” refers to the cash that is generated by your business as it trades profitably. For example, if you invest Ksh100,000 in rabbit farming and then sell your first batch of products for Ksh200,000. That means you have made an extra Ksh100,000 which you can inject back to your farming business so that it keeps expanding.
With retained profits, you can get into an ambitious business project with little capital only that you have to keep ploughing back your profits.
Here is a practical example of how retained profits work:
- September 2014 – You invest Ksh50,000 in farming
- December 2014 – You sell your farm products for Ksh100,000 and inject Ksh90,000 back to your business
- March 2015 – You sell your second batch of products Ksh180,000 and retain Ksh160,000
This way, you are able to keep growing your capital towards the ideal amount. Quite easy, only that you need to be disciplined; every step of the way.
#2: Take Advantage of Asset-Based Financing
Asset-based financing would be an ideal option for a business that has been operation for a few months and has accumulated some assets which it can off-set for financing. Examples of assets that can be used in this case: debtors, stock and property.
For example you can approach a financier and convince them to finance you with up to 80% – 85% of the value of your current stock value.
The main advantage of seeking asset-based financing is that the due diligence process tends to be faster than traditional loans and you can access funding more cheaply.
Examples of local lenders who provide asset-based financing for small business owners like you include:
- Equity Bank
- Commercial Bank of Africa
- NSE Bank
- KCB Asset Finance
#3: Look For a Venture Capitalist to Fund You
Venture capitalists can make a loan to your company if you convince them that you have a good business plan. Unlike banks and other lenders, venture capitalists often require equity positions as well. That simply means that you give them a portion of your company to them.
For example a venture capitalist firm can say “We are going to finance you with Ksh100,000 and in exchange you are going to give us 25% of your company’s worth from now henceforth.”
The good thing with venture capitalists is that they might be in a position to mentor you as you run your business in its early stages.
The catch is that you may have to give up a large portion of your company to get the money. But overall, venture capitalism is a perfect springboard for small business owners who want to succeed yet they lack capital.
Examples of Venture Capitalists organization that works with SMEs in Kenya and across Africa is:
#4: Join a Chama and save
“Chama” is a Swahili word for financial groups that are formed by friends who share common interest. You can join a reputable Chama in your neighborhood and start saving bit by bit.
Benefits of being in a Chama:
- Chamas are eligible for many types of loan including the Youth Fund and Uwezo Fund
- You can learn a lot through a chama as you interact with other members
- Chamas encourage you to save…imagine if you started saving Ksh50 per week some 5 years ago, how much would you have accumulated today?
Instead of sitting there and complain the whole day of lack of capital, why not look for a well managed Chama and start saving from as little as Ksh50 per week?
#5: Take Advantage of Angel Investors
An angel investor is basically someone who provides financial support to small businesses and startups. The capital they provide can be in the form on a one-time injection of seed money or ongoing support to carry your business through difficult times.
Ordinarily, angel investors look for a good business plan that clearly demonstrates how you business will work. They want to be convinced that you will be able to implement every bit of the plan.
The main advantage of using angel investors to raise start-up capital is that they (angel investors) are more patient compared to shylocks and banks. Angel investors are usually keen to see your business operating profitably.
Please Note: Angel investment is quite similar to Venture Capital, only that most venture capitalists require to be given a board seat in your company’s board of directors list unlike angel investors who are more lenient.
Two examples of angel investors who are willing to fund you if you have a great business idea and a professional business plan are:
#6: Use Peer-to-peer Lending Networks
Peer-to-peer lending is a relatively new source of capital for SMEs. Also known as crowd-lending, peer-to-peer lending systems do the job of bringing savers and borrowers together…thereby eliminating the need for a bank in between.
People who are willing to save their monies for a good interest rate lend it directly to the borrowers. As there is no bank involved in between, you (the borrower) can get a cheap loan.
Used wisely, peer-to-peer lending can prove to be a great source of cheap capital for small businesses in Kenya. An example of a thriving peer-to-peer lending network in Kenya is:
All we would like to tell you for today is that the money is available out there. It’s just upon you to think outside the box and go for it. We have given you the business ideas, we have told you where to get the money…and we are ready to mentor you to become a fully-fledged entrepreneur. What else are you waiting for?
Listen to wise words from Kuza Biashara’s Chief Mentor from USA, Mr. Buff Mackenzie.