A small business startup is a business in the initial stage of operations. Business startups are founded by entrepreneurs who want to develop a product or service which they believe is in demand. A startup usually starts with a high cost and limited revenue, this is why most startups look for funding for their business. These funds are used to invest in research to develop their business to meet business goals.
Factors to consider before beginning a startup business
1. Location:
A good location is important for any business, in fact, the most important consideration for any business startup. You need to decide whether the business is conducted online or physically (home, office, or store). Note that the location of a business depends on the product or service done.
2. Legal structure:
Every start-up needs to know what legal structure best suits their business. If the founder is also the owner of the business, then a sole proprietorship is best, but if there is a form of partnership of several people who owns the business then personal liability can be reduced by registering a startup as a limited liability company
3. Funding:
Raising funds for startups can be from families, friends, crowdfunding, loans, or grants. The money can be used to start business operations to improve the growth of the business. Funding for business comes with its risks and challenges, especially when taking loans or grants.
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Challenges of funding for small businesses in Nigeria
There are many challenges to getting financial help for businesses. Some of the challenges small businesses face to get funds are;
1. Nature of the business:
Investors want to invest in businesses with lower risks. They will not like to invest in businesses that will make them lose, because if the business fails, there is no guarantee that you will be able to pay the money.
2. Competition:
This is another major reason why getting funds for business is difficult. A lot of people need funds too, so there is a great number of businesses competing for finances from different sources.
3. Interest Rates:
Financial institutions that provide loans or grants for businesses require assets to serve as a security and collateral for the money given. Startups with no assets find it difficult to acquire the funds. Also, financial institutions' interest rates are too high and the criteria to meet before getting the loans are too high for people who are just getting started to acquire the loan.
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Different funding options for a small business
1. Family and friends:
This is a very common way to fund your business by allowing friends or family to financially support your business. It is suitable for businesses that need support to start their business before they can seek funding from other sources.
Merits
- It is a quick funding process
- It serves as an investment for your family or friends
The level of risk is lower
Challenges
Doing business with family and friends can damage the relationship if anything goes wrong.
2. Venture capitalist:
Venture capitalists are groups that take part in the ownership of a business in exchange for capital.
Merits
- The percentage of ownership is negotiable.
- It is good for startups that don't have any collateral.
- It helps you build a relationship with people who can provide you with an abundance of knowledge, industry connections, and clear goals for your business.
- Mentorship from experienced investors.
Challenges
- It is only possible if the business has demonstrated high growth potential and competitive edge of any kind
- Entrepreneurs may lack the skills to grow a business thereby putting the investor at risk
3. Crowdfunding:
Crowdfunding helps to boost a business's financial needs. All you have to do is to look for platforms that do crowdfunding'
Merits
- There are many options of small investments to choose from instead of focusing on a single source.
- It helps you with development funds for your business.
- Crowdfunding helps you raise the total amount needed for your business online.
- It is suitable for businesses with potential.
Challenges
- It takes a long time to reach your target.
- It requires a lot of effort in publicity.
4. Loans:
Loans are one of the most popular sources of for funding businesses. Loans can be gotten from a financial institution or money lenders.
Merits
- It is the most useful and effective way of financing your business.
- Some financial institutions offer low-interest rates for your business.
Challenges
- The process can be time consuming
- Interest may be high and most startups cannot afford it.
5. Grants:
Grants are financial help gotten from organizations or the government.
Merits
- Do not require any collateral.
- Grants are not repaid.
Challenges
- The process of acquiring a grant can be very tedious.
- Not all small business startups are eligible for grants.
Choosing the right option depends on you, always ensure to pick the choice that is less risky and more profitable.
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