How you can get funding for your business as an entrepreneur

It is no news that many Nigerian youths are not gainfully employed. Although more people are embracing education as a means of emancipating themselves from joblessness and poverty, the number of available jobs is small compared to the number of people seeking employment, creating a need for job seekers to make a shift towards job creation, start their own businesses, and become entrepreneurs.

According to the National Bureau of Statistics (NBS) most recent labour force survey, Nigeria’s unemployment rate rose to 5.0 percent in the third quarter of 2023, up from 4.2 percent in the previous quarter. Also, the unemployment rate in the first quarter of 2024 rose to 5.3%, a 0.3 percentage point increase from 5.0% in the third quarter of 2023.

Charles Odii, Director General/Chief Executive Officer of Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), noted that “Nigeria’s approximately 40 million small businesses, which reside in the informal sector, are born of both necessity and entrepreneurial zeal.” He also revealed that 87.3 percent of Nigerians are self-employed. In addition, a Moniepoint survey found that 43 percent of Nigeria’s working population, aged 25 to 34, already own or run a business, creating job and wealth opportunities.

However, with the increase in entrepreneurship in the country, funding appears to be a problem, which may be the likely cause of the decrease in the proportion of individuals in self-employment, from 86% in Q1 2023 to 84% in Q1 2024, as revealed by the NBS survey. With inflation in the economy, entrepreneurs struggle to establish and manage their businesses.

The International Finance Corporation (IFC) stated that 65 million businesses, or 40 percent of formal micro, small, and medium enterprises (MSMEs) in developing countries, have an unmet financing need of $5.2 trillion annually. This highlights a significant gap in access to funds, making access to credit very important.

A common source of funds for entrepreneurs, especially in the informal sector, is loans from family and friends. According to Moniepoint statistics, “When businesses in the informal economy do get access to loans, their primary sources are from friends and family (70.7 percent). Other sources are from loan platforms (15.1 percent) and traditional banks (12.2 percent).”

There is a great need for access to credit, especially among innovative entrepreneurs. Although knowledge of how to access alternative funding is limited, it is vital for business establishment, growth, and management. Here are ways entrepreneurs can get funding for their businesses:

1. Look for Angel Investors

Angel investors are individuals who provide funding to new businesses in exchange for a stake in the company. In Nigeria, angel investors are becoming more popular, especially in Lagos, Abuja, and other business hubs. Apart from funding, they can offer mentorship and open doors to other connections in your industry. To attract potential investors, prepare a solid business plan and pitch.

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2. Apply for Government Grants and Programmes

The Nigerian government offers several funding opportunities for small businesses, especially those run by youth and women. Programs like the Youth Entrepreneurship Support Programme (YES-P) Program, YouWin, and Tony Elumelu Foundation Grant provide funding, training, and mentorship to entrepreneurs.

3. Consider Microfinance Banks

Microfinance banks provide loans to small businesses that may not qualify for traditional bank loans. Nigeria has several microfinance institutions specifically focused on supporting small businesses. Although traditional banks are stricter, some, like Access Bank and the Bank of Industry (BOI), have specific loans for SMEs and startups.

4. Try Crowdfunding

Crowdfunding platforms allow you to raise money from a large number of people who believe in your business idea. While global platforms like Kickstarter and GoFundMe are options, Nigerian-focused platforms like NaijaFund and FundanEnterprise are also gaining popularity.

5. Join Business Incubators and Accelerators

Incubators and accelerators support startups with funding, mentorship, and networking. For example, the Lagos Innovates program, CcHub, and FATE Foundation are incubators and accelerators in Nigeria that help young businesses grow. These programs often end with a pitch day where you can meet potential investors.

6. Participate in Business Competitions

Many organisations host competitions where you can pitch your business for a chance to win cash prizes or support. Some popular competitions in Nigeria include Lagos StartUp DealDay, Diamond Bank’s BET (Building Entrepreneurs Today) Program, and Sterling Bank’s iCreate Africa Skills Festival. These events can also introduce you to investors and mentors.

7. Venture Capital Financing

Venture capital (VC) firms provide funding to startups that demonstrate significant growth potential, especially in technology, healthcare, and other high-growth sectors. In exchange, VCs take equity and often have a say in business decisions. VC funding is ideal for businesses that require substantial funding and have a clear path to scalability and profitability. Start by networking with venture capitalists and participating in pitch competitions.