+234-704-009-2801, +234-704-009-2804
Mon - Fri 09:00-17:00
Contact Us Today

How Else to Raise Finance after Bootstrapping

How Else to Raise Finance after Bootstrapping

*Reviewed 26th August 2021*

    Every entrepreneur is encouraged to bootstrap his/her idea to a certain extent before calling for funds. However, there comes the time when the entrepreneur needs more finance and cannot seem to go on doing self-finance. the process of building and financing business for entrepreneurs is expounded in our article Demystifying Startup Funding for Entrepreneurs. This article details practical options that can either substitute or supplement the option to bootstrap. For further understanding of various financing options available to business owners you can read our article on How to Fund your Business

    The first option is to give some shares to raise funds. In that case, the financier becomes a co-owner of the business while the entrepreneur does not have to border about repaying since the earning is retained in the business. There are no taxes in Nigeria on the allocation of shares. Even in cases of share transfer, the Capital Gains Tax Act exempts any gains realised by a person from a disposal of shares from capital gains tax. In addition, the Stamp Duties Act also exempts instruments for the transfer of shares (i.e. share transfer agreements) from the payment of stamp duty. Nevertheless, tax can be withheld on dividends.

If you do not have the means to bootstrap and you do not want to bring investors to your company as shareholders, your other option might be to raise funds in the form of a loan. If you desire to factor in the tax implications, you can be guided by the Companies Income Tax Act. Section 24 of the law is suggestive that tax may be levied on the interest on a loan (but not the loan itself). Depending on an entrepreneur’s need, there are industry specific interventions to assist businesses scale. For instance, there is the Central Bank of Nigeria Macro Small and Medium Enterprises Development Fund (MSMEDF) which applies to agricultural value chain, services, cottage industries, artisans, trade and commerce and any income generating business as may be prescribed by the CBN from time to time. Bank of Industry also has a comparatively cheap Agric processing fund loan with 5 year loan tenure, a moratorium period of 6 Months and single digit interest rate. For more insights see our article on SMART WAYS TO ACCESS BOI LOANS FOR SMEs. A mixed-breed option to share allocation is CONVERTIBLE DEBENTURE. Here, the financier is given the option to either collect his fund plus interest back or convert it to company shares at an agreed share valuation. 

You could also consider the option of GRANT.  This is a less popular way of financing business and it is rarely available at the beckon of business owners as it (In most cases) is “free money”. Once an entrepreneur meets the requirements for the grant and it is disbursed, it rarely needs to be paid back. In Nigeria, we have the YouWin Connect, Bank of Industry’s Youth Entrepreneurship Support (YES) programme, the Lagos State Entrepreneurs Trust Fund, etc. While there is the example of Tony Elumelu Entrepreneurship Programme for budding businesses in Africa.

In conclusion, the biggest factor that aids finance is the TRANSPARENCY with which an entrepreneur operates the company’s books and transactions. Entrepreneurs are therefore encouraged to build the right virtues that will help their business scale.