Have you been told no by the banks because you did not meet their criteria for loans? Don’t take it personal!

The banks are rigid in terms of their criteria for loans and will decline your application for funding where your business does not meet the criteria. Many start-ups and SMEs do not qualify for bank loans for some of these reasons:

• Your business has not traded for long enough
• You or your business have low credit scores
• Your business is in an industry considered to be high risk at that point in time
• You have a poor payment history.

What’s the alternative?

The funding landscape has changed over the years and there are more funding options available to your business. These funding options (Alternative Finance) that fall outside of the more traditional financing options are now available to businesses and or business owners. You need alternative finance for these reasons:

• Quicker access to finance
• A plethora of funding options/products to suit your funding requirements for your business
• Greater flexibility surrounding eligibility requirements – credit score & length of trading
• Providers have specialist knowledge about a variety of industries which ensures you find the finance option that is best for your business.
• Access to more capital when you’re maxed out with existing bank line of credit
• More affordable finance
• Less stringent covenants for repayment

Alternative Finance Options

1. Angel Investors – Angel investors are more likely to invest in a startup or early-stage business that may not have the demonstrable growth a VC would want. They are individuals who not only provide the funds but are willing to provide guidance for the growth of your business.

2. Asset finance & Re-finance of owned assets – this is an option for businesses seeking expensive equipment to get their business ideas off the ground. It gives you the ability to acquire the machinery or IT equipment needed, without having to pay the full cost up front. The assets are paid for over the lifetime of the lease in instalments.

3. Business Grants – A business grant is financial assistance awarded by a government or a body or organization to businesses. However, business grants are very competitive and not easy to obtain but this is another alternative financing option.

4. Bridge Finance – this is typically needed to fund the operational needs of your business and to keep it solvent pending when it can obtain a longer-term financing.

5. Crowdfunding – You can pitch on crowdfunding websites for a sizeable investment amount with the ability for multiple investors to invest small amounts towards achieving your goal.

6. Invoice finance – Also known as factoring, invoice financing is where the lender buys your unpaid invoices, so you then have immediate cash. Once your customer pays the invoice, you get the remaining balance minus the lender’s fee.

7. Lease/ commercial property loans – these loans are generally used to purchase or renovate property. The lender would usually require the property being financed by the loan to be owner-occupied and it acts as collateral. The lender attaches a lien to the property that allows seizure if you fail to repay on time. 

8. Mini-bonds – with mini-bonds, companies can issue them in exchange for debt financing from a group of lenders especially their customers.

9. Partner Financing – Here a strategic partner, usually another player in your industry funds the growth in exchange for special access to your product, staff, distribution rights, ultimate sale, or some combination of those items. Also, sometimes it can be royalty-based, where the partner gets a piece of every product sale.

10. Peer to peer lending / Market place lending – Think of it as a combination of crowdfunding, loans, and angel investment where you can borrow money from other individuals and vice versa. It is an option for raising capital that introduces borrowers to lenders through various websites. Parties are allowed to negotiate the terms of capital lending and reach a mutually beneficial standpoint.

Other alternative finance methods include device financing, Pension-led funding, Private Equity, Revolving credit facilities, Secured & Unsecured loans, Venture Financing.

How to prepare your business for alternative financing

1. Have a solid business plan with finance projections
2. Know how much you wish to borrow and the duration
3. Do your market research and know what works for your industry
4. Engage professional advisers (finance, legal, etc.) that have specialist knowledge in a variety of sectors to ensure you are protected while raising funds.

Don’t give up!

We understand that trying to find financing for your startup can easily turn into a full-time job, from building a network of investors to connecting with other founders. However, by working with the right team (advisers & investors), being precise in your search, and taking the time to be purposeful in your pitch, you can take important steps toward funding your company and positioning yourself for success.

For more information on Alternative Finance & how to access same, contact our Corporate Finance & Business Advisory Team
at counsel@acuitypartners.com.ng