RAISING CAPITAL IN NIGERIA

Capital is the term used for any financial resources, funds or assets owned by a business that is utilised for the promotion and development of any business association.

CHAMAN LAW FIRM

6/2/2022 2 min read

OUR STORY

Quality, not quantity

We have made quality our habit. It’s not something that we just strive for – we live by this principle every day.

RAISING CAPITAL IN NIGERIA

Raising or accessing capital to fund business is one of the main challenges faced by startups in Nigeria. Capital is the term used for any financial resources, funds or assets owned by a business that is utilised for the promotion and development of any business association. Capital can be raised for a business via several means, to wit: personal funding, funding from relations, crowdfunding and loans from banks and private individuals among other channels.

Personal saving is a way people accumulate funding. Commencing saving early enough will turn out to be much more effectual. Seeking capital may be eased by forming partnership with some other people. What is needed is to find someone ready to take charge of funding the business alongside as a partner and there will be agreed business formula. Visiting a development bank for loan may go a long way. Notably, development banks do not charge as much interest rate as other banks.

Crowdfunding has been defined as a method in which companies and individuals raise funds from the general public through an online platform to finance a particular project or company. It involves raising capital for a business by pooling together small amounts of money from a large number of people instead of raising funds from few investors.

Types of funding or financing may include the underlisted options as explained below:

Debt financing: Debt financing is what readily comes to mind when most entrepreneurs think of funding. Debt capital is any money obtained that must be repaid, usually with an interest, at an agreed later date or interval. It is most commonly offered by commercial and microfinance banks. Debt capital is suitable for businesses with financial traction and collateral. It is not suitable for early stage businesses or businesses with insufficient revenues and collateral.

Equity financing: Equity financing involves raising capital from investors in exchange for a stake or share in your business. It is more expensive than debt capital because it dilutes your ownership and requires offering regular financial returns (such as dividends) to investors or shareholders. Typical sources of equity financing are angel investors, venture capital firms, private equity firms and the stock market. It is mostly utilized by startups with high growth potential that need to scale very fast or large corporations that need to expand. It is not ideal for businesses that want to grow slowly and steadily.

Hybrid financing: Hybrid financing, such as mezzanine financing, combines elements of debt and equity financing. It is not as common as debt or equity financing in Nigeria.

Grants: While most types of funding involve some form of give-and-take, you are not expected to pay back a grant or give up a stake in your business for it. Grants are usually given to businesses that are already making or will likely make a positive social impact.

NB: This article is not a legal advice, and under no circumstance should you take it as such. All information provided are for general purpose only. For information, please contact chamanlawfirm@gmail.com

WRITTEN BY CHAMAN LAW FIRM TEAM

EMAIL: chamanlawfirm@gmail.com

TEL: 08065553671, 08024230080