One of the requirements of starting and running a business no matter how small, is capital. How can a small business be able to attract funding consistently? First let as look at the popular source of capital for a small business. The major ones are: family, friends, self-help grounds, sale of property, micro-finance, banks and lately the lending Apps. There are also public and private grands, but they are certainly not dependable.
The stage of the business in terms of size and age is the greatest determinant of what source of capital would be the best of the business. If one has just started off, family, friends and self-help groups are probably the best option. For those who happens to have been in the business for some considerable time then micro-finances and banks could be their best option, but depending largely on the amount in question.
When one does not have a good financing plan, the result is that they keep on approaching the wrong sources and they are turned down each time. They may with time become frustrated and angerly, which in turn could lead to giving up on ones venture or develop hatred towards people that were deemed as prospective funders. Before for any attend to approach a person or an institution for funds, always ask yourself how does that person or institution stands to benefit from that transaction. What would make them want to lend you money, because sincerely I do not think there is anyone who would give you their money just because you want it.
Having started my business from ground zero, I’ve certainly tried all of the above listed sources. As usual they all have the merits and demerits. Borrowing from family and friend is the cheapest source of capital, and cheapest in terms of cost of capital. This does not mean it is easier for everyone to get a loan from their family and friends, for this is highly dependent on the trustworthiness of the person than their ability to pay back. Mostly when their family and friends are not confident in lending them money, they tend to say they do not have it. As we have mention, this source of capital is majorly pegged on trust, and reasons why family and friends may not have trust on you, is that mostly if you are trying a new idea either to the market or to yourself, they underrate you capacity to see the project through successfully, or else the history you have had with repaying back previously.
With self-help groups, popularly know in Kenya as Chamas, and micro-finance they tend to go hand in hand. This is fairly cheaper source of capital than banks and lending Apps in terms of cost of capital, as their rates tends to be a little lower. The challenge with this source is that they require one to build a saving history with them, and the history is to the large extend tied to the performance of other group members, as they are meant to act as the guarantors of your loan. Though this method may seem to take longer before the actual funding takes place, is the best starting point for those who are starting from the floor, as it helps to develop patience and financial discipline.
Banking industry has changed sharply of late, and access to capital has become relatively easier. Now one can just login into a bank app and borrow some money without any prior banking history, but this does not apply for large amount of money. The goodness about bank is that one can get huge funding at go and much faster when all conditions are met. However, the down side is that the requirement are a bit tougher and the cost of capital higher too. Among the array of the requirement is one banking habits, in some cases collateral or guarantors, and a list of some documents.
Today rending Apps are the fastest access for funding, this is because the requirements are minimal and the processing is instant. However, the studies have shown that this source of funding is prohibitory high and the amount of money involved may not be large enough.