We have all said or heard people say that if I had the money I could start this kind of business. The main question then is “Is capital the largest impediment to starting a business?” According to Narendra Raval, the entrepreneur behind Devki "If you took me now, with nothing on me, no cash, no phone, and you dropped me in an arid land in Ethiopia or Somalia, I will build another Devki dynasty in no time without taking a penny from anywhere or knowing anybody." The key learning here is that maybe capital is not the largest impediment to starting a business, but the courage to take the risk and start is the biggest stumbling block.

As long as you are committed to achieving your goal the skies will in most cases align to give you the push. There are different sources of capital that one can use:

1. Personal Savings

From a very early age some people have been able to get into business from the very little cash they have and instead of consuming it, they used it for trade. If you remember, even on campus some people were doing things like photography and we would happily pay for them and even the Tuckshops were owned by the students. For the people who had the entrepreneurial spirit earlier on they have started early and good to see some of them do great things.

2. Crowdfunding

‍There are some people who are able to help us start our businesses. This could be either friends and relatives but even outside that circle there are formally organised means of accessing capital. For one to get capital from these people and organisations one needs to fully understand their business and put together a good marketing plan assuming you are going to fundraise from a large number of people. Here people rely on trust and one should ensure they do not over-promise what they cannot deliver.

3. Direct Equity

As one starts their business they can decide to approach specific investors largely the angel investors and as the business gains traction they can get cash from Venture capitalists and eventually private equity investors. The key drawback here is that as an entrepreneur you might end up losing control of your business depending on how much equity you give up. The advantage here is that you tend to also benefit a lot from the expertise of the people who have invested in your business and the business gets structured early on.

4. Corporate Papers and Commercial Papers

One can approach investment banks to help fundraise for them. The catch here is that most of the financiers here only look at businesses that have been profitably operational over a period of time. This could also be expensive given the arrangement and the placement commissions required but they tend to be faster and cheaper to access than bank loans.

5. Bank Financing

Banks have different funding structures to fit different business needs. The key thing that they look at is the repayment ability of the business and it is therefore difficult to get funding if you are just starting up. Some of the key solutions banks give to their clients in business include:

• Overdrafts and bridge funding: These are short term loans that are given for working capital purposes and they are mainly repayable within a short period of time as a month and they tend to be expensive;
• Invoice Financing: this is invoice discounting or factoring whereby for the exchange of immediate cash you give the financiers your invoices and they wait for payment from your clients. They are short term in nature and are usually expensive;
• ‍LPO Financing: this is the loan given to enable the business to supply goods and it is pegged on the contract or the LPO given. The banks’ finances up to 80% of the size of the contract awarded and it is usually a shorter bridge with tenors of on average six months;
• ‍Term Loans and Mortgages: These are fixed tenor loans taken to finance the business, the term loans can be unsecured while mortgages are secured with a building or real estate asset. The bank looks at the cash flows from the business and assesses whether you can be able to pay it out;
• ‍Leasing and Hire Purchase: The bank buys the assets that the business needs on their behalf and for that, they expect regular payment. Security is usually the asset that has been bought.
  

With all the various available sources of funding that one can access, the following are the key things to consider as you get the right type of funding:

1. Stage of the Business: Usually some type of financing is only available for businesses that have attained specific milestones eg you can not get Private equity funds coming to your business at the early stage neither can you get a business loan as you are starting;
2. Time Horizon: Depending on how long you need the capital for you can decide the right type of capital requirements. If all you want is bridge financing what makes sense is to have a loan instead of going for equity financing;
3. ‍Control: At times the business owner would like to maintain control of their business in that case it is more prudent to get debt financing as equity investors come with their own requirements that will mean ceding control;
4. ‍The cost of capital: for debt the cost of capital is known in advance and it is good to know what you are going to be charged as it determines the profitability of the venture you are undertaking;
5. ‍Terms and conditions: there are different terms and conditions put under various capital sources it is always good to involve some professional especially lawyers before signing the various funding documents as they could be prohibitive;
6. ‍Capacity enhancement: there are financiers who come with technical assistance and this could help the business scale to the next level. It is therefore prudent to look at what else the financiers are bringing on board as that could be priceless.

Sometimes you make the right decision, sometimes you make the decision right. Phil McGraw. It is always good to make a decision and start as you will never make the right decisions all the time. It is always good to have the right mix of the various capital sources as they serve different purposes in the running of a business. The key is to be cautious, seek help and move to actualize your dream and change the world in your very small way.