From idea to validation, to expanding or pivoting, funding is a major success factor for any business. Any successful company that lacks funding at a crucial point in their growth, can go out of business. However, a company that isn’t quite as successful but has access to funding, might have enough time to pivot to something more viable.
As an entrepreneur, you need to learn about your options for external funding into your business, and how to choose the right funding model that supports your business both in the long and short term.
A business loan is a key source of external funding that every business owner should learn about even if they currently don’t need it. One of the biggest misconceptions we have heard while working with Shecluded is the view that only distressed companies source for loans. No! Some big organisation take loans to implement projects even when they can afford it. And, for them it is a business decision based on the estimated ROI (return on investment). They simply gauge the cost of different options and the expected returns, then take the best decision for the business.
There are several healthy reasons why a business would need a loan. These reasons include:
- Expansion: Expansion is not a fancy word for aggressive entrepreneurs who are ambitious. If you want to keep making a good profit to manage inflation and don’t want your business to shut down completely, whatever the size of your business, you should think, plan and act for expansion every day. A loan can provide you the funds to implement your expansion plan.
- Inventory: Most businesswomen in Nigeria play in the retail space. From working with them, we have learned various inventory needs and how they impact not only on their bottom line but on their business brand. There is a constant need to make sure inventory is available for the customer immediately they need it. For some other businesses, trying out new inventories to attract a new set of clientele or improving their current inventory is key to their survival. Additionally, some businesses see strong seasonality in sales but, without additional funds they find themselves struggling to respond. Effectively, planning your inventory needs with a loan can help position you to seize all the opportunities available.
- Cashflow: Some good businesses have died because they were unable to manage their cash flow to keep the business operating during a moment of temporary cash deficiency. Getting a loan can give you that lifeline to keep operating while you’re trying to get new customers.
- New equipment: Constant innovation is disrupting the way we do everything including our businesses. Sometimes, the best plan to take your business or idea to the next level is a piece of new equipment and whether you can afford to pay cash for it or not. Financing it with a loan might be the best strategy to optimize the new equipment. Buying a new equipment with your funds and not having funds to run it creates an underproduction problem.
- Increases your term on larger loans: Small businesses have limited access to loans because of their lack of credit history because no one knows how you will behave as a borrower. When you take a loan for your business and repay, you find out that having that sort of discussion with your financial institution gets easier. We discovered that within our network, it’s easier to discuss larger loan amounts with women that have borrowed in the past and have paid back.
Now that you understand the many benefits a loan could provide for your business, do your due diligence as you embrace this funding alternative that could be a potential life-line for your business.
Ifeoma Nwakwesi Uddoh is the founder of Shecluded.com, a financial literacy and credit company focused on the success of women led businesses in Africa. Ifeoma’s expertise lies in analytics, business development, product road mapping, operations and investments. She has a Masters degree in management science and operations research from the University of Lancaster, UK. She has experience working with PriceWaterHouseCoopers, Slimtrader, iROKOtv, Wilkinson, UK and Compex Africa. She is a non executive director at Sasware Inc.