How to get finance for your start-up business
In general, the lack of collateral, poor record keeping and unavailability of credit history, among other factors, are the source of their risk.
But given that a smooth flow of finance is the lifeblood of start-ups and SMEs, many stakeholders with a passion for business growth have tried finding alternate ways that fresh entrepreneurs can rely on to fund the growth of their businesses.
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One such stakeholder is the Springboard, Your Virtual University, a weekly motivational talk show on an Accra-based radio station, Joy FM.
As part of its weekly series on entrepreneurship and business growth, the show, hosted by Reverend Albert Ocran, used the May 30 edition to educate listeners on innovative sources of finance for SMEs.
While underscoring the economic importance of SMEs and start-ups, the two resource persons on the show – Mr Yofi Grant, an investment banker and Director of Grant Dupuis, and the General Manager of the Venture Capital Fund, Mrs Hamdiya Ismalia – explained that discussing the financing options available to this category of businesses was vital as it would educate them on what routes to take when looking for finance.
Given that SMEs contribute about 70 per cent to national output and account for over 90 per cent of businesses nationwide, Mr Grant said it was important to dissect the issues that impeded the growth of those businesses, key among them being finance.
He appealed to owners of such businesses to adopt a repayment mentality, the lack of which has been the bane of most SME owners.
Is the role of capital overrated?
It is an uncontestable fact that most banks and non-bank financial institutions (NBFIs) prefer lending to bigger businesses, where they can be assured of timely repayment, to giving money to new ones, which can easily default. This preferred option of most Ghanaian financial institutions has worked against the growth of most start-ups and SMEs.
This partly explains why on many occasions, the Business Barometer Index (BBI) of the Association of Ghana Industries (AGI) has ranked access to and cost of credit among the five top challenges facing SMEs and businesses in general in the country.
Mrs Ismalia, who is also the General Manager of the Venture Capital Trust Fund (VCTF), thinks the role of capital in businesses is not overrated, explaining that capital is at the heart of almost every human endeavour and that has made issues around it too difficult to ignore.
“Everything that you do, you need money. When you come to business, you need more. And talk more about it because it is critical and it is not often available here,” she said.
She said that access to and cost of finance was a challenge in the country but added that it could be tackled if SME owners put in place the right mechanisms.
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“Yes, there are challenges in terms of finding the money but if you are able to prepare yourself well, then I’m sure that money will be available.”
Funding options
Contrary to the general perception among start-up owners that investors always want to invest in good ideas, Ms Ismalia said investors rather assessed the passion of the entrepreneur, taking into consideration how far that passion could go.
Although ideas play a key role in business, personal motivation is vital, she stressed and advised entrepreneurs to nurture passion for the implementation of their ideas.
“Sometimes, people have the idea alright but the passion is not there and you know it takes time to be able to move from an idea level to conceptualisation and then really get it running,” she said.
That, she said, called for hard work by prospective entrepreneurs to be able to inspire confidence in an investor to buy into it and be willing to invest into the business.
Mr Grant mentioned that prospective entrepreneurs could access funds from their families and friends, venture capital funds and other informal funding sources nationwide.
While stating that borrowing from the formal financial sector was another source, he said some structural constraints had made it difficult for start-ups to explore that option.