Financing Your Creativity: A Lender’s Perspective

Financing Your Creativity: A Lender’s Perspective

Most entrepreneurs would agree that as much as creativity brings out the innovative aspects of the business idea on one half, a principal part which makes up the other half is the issue of financing.

Whilst creativity is the ability to use the imagination to develop new or original ideas and things, the sustainability of the whole enterprise would depend very much on the kind of finance accessible to it.

There are different ways to finance a new or existing business, each of which features its own benefits and limitations.

Businesses generally go through about seven different phases of development.

Some of which would include the seed stage – the birth process and time of concept development, the startup stage – when it eventually becomes a legally registered entity, and the growth stage – where the business is balanced, earning revenue, making profit, and keeping books properly.

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The other stages are: established, expansion, mature and exit stage.

In this context, the concerns most small businesses face are more connected with the first three stages listed.

As such it would be more beneficial to hone our focus on those ones particularly.

Meanwhile there are different sources of financing recommended for each of these stages – especially depending on the peculiarities and the priorities at that momentary phase of the business.

For a business that is still somewhere in between the first two stages – the seed stage and the startup – it is safer to source for finance from avenues such as personal savings, friends and family.

However laying all the options bare, there are various other sources which might include government grants, bank loans, angel investors and venture capitalists.

Providing an expert’s perspective to the issue, Akin Oyebode – Head of SME Banking at Stanbic IBTC bank – emphasized that any business at those first two stages would do well to source capital from more informal sources such as family and friends, as they come with lesser risk quotients.

Financing Your CreativityDuring a presentation at the instance of  “Founder2be”, he highlighted two broad categories of business financing available to small businesses, namely debt financing (borrowed funds) and equity financing (selling ownership interests in exchange for capital).

Basically, each of the earlier options fall under one or both of these two categories – with debt financing covering personal savings, friends, family and bank loans.

Equity financing also includes angel investors, venture capitalists, government grants, and could even feature family and friends in the frame.

Laying a background, Oyebode indicates that as a banker his opinions are mainly from a lender’s perspective.

However having been an investor in certain scenarios – even though on personal grounds – he equally comes from the perspective of one who intends to add value to the business.

“Bank loans should never be first port of call for any small business, especially because the rate starts to count from day one,” He explained.

“Loans do not seem to accommodate the teething phases a business might need to go through before achieving the stability and continuity needed to grow.”

On the same front, Oyebode tried to demystify a certain belief that banks only tend to loan funds to the bigger and more established individuals and businesses.

“We have financed and still continue to finance small businesses, but they have to meet certain criteria such as: being in the business for a while; keeping their books properly; having a credit worthy track record; exhibiting great strength of character; and they must have something which already works combined with some profit potential.”

According to the Banker, they would only fund something that has gone beyond the idea stage.

But even at that, “entrepreneurs must realize that the funds are not gifts as they belong to other customers, so if anyone must be granted the facility, then they must have a clear means of repayment or collateral in case of default.”

He again reiterates that small businesses should begin their search for financing from family and friends, and be realistic in the kind of amounts they request as loans.

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“The banks must see the need, know what it is going to be invested in, and also be able to identify a clear path to pay back.”

Ultimately most of his submissions identify distinct and useful lessons for business owners and entrepreneurs who intend to attract funding for their businesses.

In sum, they must understand their businesses and its needs and also ensure that business records and accounts are not only up to date, but aspects such supply and sales records are properly documented.

A business would likewise do well to maintain a good borrowing history, as this would help to ensure success in future endeavor to obtain necessary capital for the business.

Written by Akinola Odunukan