Small and Medium Enterprises play a very significant role in the economy of any country; SMEs ensure the net growth of an economy by contributing heavily to the creation of employment opportunities. According to a 2012 report issued by the Federal Government, 32.4 million people have been engaged by SMEs across the country. SMEs help spur innovation and also assist in furthering productivity by improving local technology. Presently, they make up a large percentage of private sector companies in Nigeria with the National Bureau of Statistics putting the total number of SMES at 17.28 million as at 2012.
Unfortunately that same report by the National Bureau of statistics also states that out of the 17.28 million SMEs in the country, 17.26 million are actually micro enterprises as they were valued at less than ₦5 million and had less than 10 persons as employees. This cannot be unconnected to financial constraints faced by the sector. Commercial banks are supposed to be the go-to institution for access to finance but alas businesses with successful operating histories are usually preferred to those who are new on the scene.
The only way micro enterprises move to become small and medium scale enterprises are through direct access to funds. Listed below are a few options entrepreneurs can consider in sourcing capital to grow their businesses.
1. They might want to get in touch with a venture capitalist-According to Investopedia, venture capitalists are investors “who either provides capital to startup ventures or supports small companies that wish to expand but do not have access to equities markets.” So VCs as they are usually called, are not necessarily interested in businesses with operating histories but rather have a knack for funding “un-proven” business ideas. They typically focus on businesses that have the potential to offer them a higher rate of return than would be possible by other investment options and as a return for their investment in the company, they are offered a sizable percentage of the company’s shares. As a result of their mode of operation, they tend to focus on companies that come up with disruptive, ground breaking ideas. Some venture capitalists currently 2q operating in Nigeria include; Unique Venture Capital, Lighthouse investments Ltd, Actis, and ECP
2. Try Bootstrapping- This just simply means starting a business with little or no money. In this case, your personal savings or funds from family and friends would be considered seed money to start off the business. Whatever revenue that is generated from initial patronage of customers is then ploughed back into the business to aid expansion. Here one makes sure to go very lean, investing money in areas that are only absolutely necessary. Taking this option as an entrepreneur would require strict discipline on the part of the business owner and a lot of passion for what he or she does. Successful companies who bootstrapped in the past include Wild Fusion Agency-a digital marketing agency owned by Abasiama Idaresit and Talentbase founded by ozioma Obiaka.
3. Startup Incubators- Startup Incubators typically offer physical office space along with other startups; they also help nurture and develop startups by offering mentorships, training, seed funding and other logistical support. Some Nigerian business incubators are the Tony Elumelu Entrepreneurship Program (TEEP), Wennovation Hub and FocusHub.
SMEs are the key to sustainable growth and development of the economy hence the reason the Central bank of Nigeria in 2013, set aside N220 billion for the development of Micro Small and Medium Enterprises. There is still more work to be done in the area of financing, as Nigeria could do with a lot more local Angel Investors and Venture Capitalists to help foster entrepreneurial pursuits.