Addressing funding challenges in biz start-ups

Like Ugele, Ernest Onorede Oshogbeme, who is a 2011 Engineering graduate from the Covenant University, Ota and now also has a Masters degree says he had hoped to establish a small manufacturing firm after his industrial attachment. But he is hampered by lack of funds to assemble the necessary materials to compete in Nigeria’s harsh […]

Like Ugele, Ernest Onorede Oshogbeme, who is a 2011 Engineering graduate from the Covenant University, Ota and now also has a Masters degree says he had hoped to establish a small manufacturing firm after his industrial attachment. But he is hampered by lack of funds to assemble the necessary materials to compete in Nigeria’s harsh business environment.
“One challenge we face is the high cost of running business in Nigeria.  A lot of engineering firms have packed up in this country because of our poor energy supply, this is one of the difficulties in initiating small businesses for ourselves,” he said.
While some creative youths see funding as the greatest handicap to their small business development, experts say it is the requisite financial literacy and technical know-how that is most important in business start-ups.
Godbless Safugha, Executive Secretary, Association of Non-Financial Bank Micro Finance Institution in Nigeria (ANMFI) identified lack of “bankable business idea, lack of proper record keeping, lack of verifiable financial statements, and lack of acceptable collateral” as some of the handicaps among young entrepreneurs seeking funds.
He said the institution is trying to bridge the gap in the cooperatives by building their capacity and link them to funding.
Also speaking, Mr Damian Ugwu, an Investment Banker blames some graduates for their inability to develop good business plans from a business idea that could attract funding. He also said knowledge of basic cash flow forecasting and analysis skills is important in making proposal for business financing.
In the effort to bridge the gap between funding and building skills for its successful management for small business growth several banks are now evolving new programmes for venture capital sourcing and management.
The Central Bank of Nigeria (CBN), Diamond Bank PLC, Access Bank PLC, other commercial banks and international financial institutions such as the International Finance Corporation (IFC) have taken the lead in guiding young entrepreneurs on steps to secure and manage business start-up funds.
Their various micro, small and medium enterprises (MSMEs) intervention has now led to the increase in the number of MSME in Nigeria at 17,284,671 with total employment of 32,414,884, according a survey in 2010.
This is good news for a country which is in need of both funding and jobs, with a population of 170 million peoples and high unemployment rate.
Speaking on techniques for start-up funding at a recent event, Head, Women Banking Unit, Access Bank, Titilola Familoni identified need for entrepreneurs to keep proper records of their transactions and operations, as such would support their loan application processes.
Speaking during the fifth yearly Young Entrepreneurs Network (YEN) conference in Lagos, she said lenders approve loans based on statistics or information available to them as required by Central Bank of Nigeria (CBN).   
She urged entrepreneurs to invest in their personal development, as well as workers, to equip them with knowledge against challenges that face the business.
Those who seek bank funding should realize that banks would avoid funding a customer’s risk. So they should properly structure their business and ensure equity which is very important in business transaction.
But other analysts like Sunday Ugwu, an investment banker insist the banks are not doing enough to encourage small business growth in the country.
“Banks are not lending to the real sector of the economy especially in the robust sectors such as agriculture and SMEs but they prefer to lend to fast yielding, low-risk sectors such as oil and gas and consumer goods importation,” he said.
He argues further that banks in Nigeria also lend to public sector programmes and projects especially ministries in lieu of monthly or quarterly federal government allocation.
“These short term lending portfolios have taken them away from the real sectors. This is not good for the country where all focus of financial institutions on mono-centrist. The interventions should be evenly spread across the various sectors, segments and communities within the country not just in big cities and particular businesses,” Ugwu maintained.
Indeed, investment in only single sectors of the economy puts the institution’s financial health at risk and the country’s economy as well when anything happens in the international market. It has also contributed to the non-inclusive growth which has become the lot of Nigeria’s economic growth.
Ugwu said banks have also failed to inject funds to create incentives for investments in value-chains in the agriculture sector for instance and SME belonging to women.
“It has been proven that women capacity development and economic empowerment has direct impact on the home and the society in the drive towards poverty alleviation,” he said.
He dismisses suggestions on why banks avoid lending especially when the SMEs are not well structured, saying that it is the duty of the bank to look at the potential in a venture and bring in the necessary improvements in corporate governance rather than being overly mindful of risks.
In a bid to waive these risks perceived as obstacle to credits the federal government through the Ministry of Finance introduced various youth entrepreneurship support programmes such as YouWIn, SURE-P and agro-interventions. How far the youths go in utilizing these funding avenues will go a long way in the country’s economic growth.