4 MAJOR PROBLEMS FACING BUSINESS FINANCE IN NIGERIA

Finance is the lifeline of any business. Every business needs finance to cover its daily expenses and invest in its growth. Finance can come from several channels like equity investment, loans or credit. Without finance, a business would not be able to pay its bills and take up investment, business and growth opportunities. Additionally, access to finance determines the ability of a business to expand, hire new employees and develop new products and services. In this article, we will explore reasons why businesses in Nigeria Face a dire challenge in accessing financing.

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What is Business Finance?

Business finance is about managing a company’s money to make it successful. This includes finding money to start the company, making smart investments, and keeping track of how the company is doing financially.

It involves the analysis of a company’s financial status, forecasting future financial performance, and making decisions about the allocation of resources to maximize profits and minimize risks.

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Source of Finance for Business

There are some ways a business can source finance to facilitate their trade activities in Nigeria. These different sources cater to the structure and needs of each business and as such, each business would have to evaluate its need, turnover and market to determine the best source or sources that would be best for them.

1. Bank Loans: Banks and other financial institutions offer various types of loans to businesses, such as term loans, lines of credit, and equipment financing. These often come with interest payments and a maturity period when the business would be required to pay back the principal.InformationGuideNigeria
2. Venture Capital: Venture capital firms and in the business of investing. They invest money in the growth of startups and early-stage companies in exchange for equity ownership(a share of the company). Venture capital firms might also include their ability to intervene in the management activities of the business in their investment offer.4 MAJOR PROBLEMS FACING BUSINESS FINANCE IN NIGERIA
3. Angel Investors: High-net-worth individuals who invest their own money in businesses, usually in exchange for equity ownership.
4. Crowdfunding: This is the soliciting of funds, usually in small contributions from a large number of people who are interested in the business. It is usually done via the internet and unlike most other sources of funding, there is less pressure from the investors.NYSC Portal
5. Government Grants: Government organizations may provide funding to businesses for specific projects or to support specific types of business activities. For instance, agricultural grants can be offered to improve the growth of agriculture in the nation.10 Best University In Nigeria With Low School Fees
6. Self-funding: This can be done by using the company’s profits or owner’s funds.
7. Stock Issuance: Companies can also raise funds by issuing stocks to the public via an Initial Public Offering (IPO) or issuing additional shares to the existing shareholders.

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Problems of Financing a Business in Nigeria

1. Inadequate Collateral Facilities: Most businesses in Nigeria do not have sufficient collateral for the loans to which they require. Collaterals are securities in the form of assets that the lender, usually the bank, can set to recoup the value of the loan given to the business. Collateral can be in the form of assets, real estate, equipment, inventory, software and account receivable.200 Romantic Love Message

Most businesses in Nigeria do not have a good understanding of their assets and how they can be used for collateral. Most businesses now tend to avoid having fixed assets in their balance sheets and would rather lease because it is less costly and more flexible. This often puts them in a tough spot when they have to take out loans.

1. Poor Credit History: Many businesses in Nigeria do not have a reputable credit history. Most of the working capital used by businesses is sourced from external bodies. This is very bad because, when there is an actual need for business expansion, they face the problem of taking up multiple loans. This makes them high-risk borrowers and will make it difficult for them to secure financing.JAMB Portal
2. Limited Financial Statement: A lot of small businesses in Nigeria either do not have a financial statement or have a very short financial history. This makes it difficult to assess the business and its creditworthiness of the business. As such even if the business is making a marginal profit or has a brilliant idea, investors and creditors will be sceptical about providing the finance needed by the business.
3. Strict Eligibility Criteria: Most government programs including grants are sector or area specific, this may also be reflected in the industries and businesses creditors and banks would prefer to give loans. Businesses that do not fall within the overt or covert criteria tend to lose out in the bid to secure finance, grants and loans. For instance, a government grant for farmers will discriminate against businesses that deal in the processing of farm produce even when these businesses face almost the same circumstances as the farmers themselves.5 Best Mtn Wifi in Nigeria and their prices
4. Limited Financing Options: While sources like crowdfunding, angel investing, venture capital, bank loans and stock issuance are available, these options are still far-reaching for several Nigerian businesses. Small and medium-sized businesses often face these problems that could plunge them into taking out unfavourable loans from unscrupulous loan providers. Sources like stock issuance are not ideal for most businesses as it can reduce their ability to control the direction of the business. While crowdfunding, angel investment and venture capital are largely dependent on the audience’s belief in the ability of the business to succeed and provide them with huge returns.

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Solutions to the Problem of Business Financing in Nigeria

1. Government Assistance: Government intervention can be necessary for reducing interest rates and making loan criteria less restrictive. The government could also guarantee small and medium business access to loans.105 Good Morning Love Messages
2. Improve Creditworthiness: Businesses should endeavour to pay their bills on time and avoid the accumulation of working capital beyond their capacity to pay. By doing this they are putting their financial statements in order and making it easier for potential investors to see them as creditworthy and less risky.
3. Innovative Financing: Businesses should begin to think of more unconventional but legal ways to source for finance. This may include peer-to-peer financing, joining business incubators and accelerators and other options.
4. Leverage Assets: While the idea of holding fixed assets can be off-putting, it is still necessary for businesses to ensure that they have a substantial amount of assets in their balance sheet as this will help improve their ability to provide adequate collateral.

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Conclusion

A range of problems faces the business industry in Nigeria with finance being the most significant. Nigerian businesses, especially startups and small businesses are constantly looking to get more finance to grow their business and offer more and better services to their customers.

To wrap up, getting finance for a business can be challenging, but it’s not impossible. Businesses should research and explore all possible options to secure financing By taking a proactive approach, businesses can increase their chances of obtaining the funding they need to grow and achieve their goals.

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