Most people know they want to start a business. What they don’t know most of the times, is how they’re going to fund their business. This is the stumbling block for many eager Entrepreneurs who simply give up their idea or dream when they just can’t figure this part out.
When clients come to us with their interest to start a business, we make sure they understand what they are getting into financially, and that they understand the words ‘cash-flow’. Too many persons only pay attention to the frills of owning a business without taking into consideration, the in-depth details required to make a business survive and thrive. There are a lot of persons who start a business, and not enough Entrepreneurs who are able to seek out opportunities to create a sustainable, viable business, keep learning, keep creating, and keep innovating. If you’re going to build a business, why not build one to last? Why not build one your children or a future investor or buyer can take over?
So where are we going with this? Listen, if you want to start a business, you have got to keep your head in the game from the moment the idea comes to you, and not get carried away by the ‘shiny object syndrome.
So let’s talk Money! No, better yet, Capital! Where is it going to come from? This is your first business. Are you going to rely on the banks to just drop some money into your idea after you present them with a Business Plan? A Business Plan you paid someone else to do and you can’t even explain? To be quite honest with you, without a trading record, getting startup finance from a bank is going to be difficult no matter how good your idea seems.
The banks tend to avoid early-stage startups with no business assets or no business credit as they are potential risks. These financial institutions cannot rely solely on your word that your business idea will be fruitful. Our recent chats with officials at First Citizen’s and Republic Bank highlighted that they are on to the persons that simply pay others to prepare the important documents like their projections and Business Plans. Now while there is no problem with outsourcing the service/s you can’t bother to take the time to do or understand, the issue arises when they interview you and ask questions in relation to what is presented in those documents. Most entrepreneurs have no idea what the figures represent or what those figures say about their business. Not only can this cause you to lose out on the business transaction you were trying to secure, but it can hamper future business dealings with the bank.
So, we mentioned above that the chances for a startup loan are slim. The banks will require you to be in operation for at minimum, (one) 1 year before approaching them. With that being the case, what other options are there for sources of capital for MSMEs?
SOURCES OF STARTUP CAPITAL
Startup capital is also called ‘venture capital’ since it is capital that is needed for the start of a new business ‘venture’.
Below, we’ve worked out a few ways Entrepreneurs can get the money or at least some small amounts required to fund their startup. Of course, this varies from country to country, and right now, we can say these options can, at any point in time, become unavailable due to our present economic situation. Or...on the contrary, because of the difficulty experienced by startups in financing their business, these options may become easily accessible and ready for issue, as in the case of angel investors who see opportunities.
Let’s begin with the 3 Fs: Family, Friends, Fools.
We never recommend that persons begin their business in, or with debt. Our general business rule is, ‘Don’t spend money before making money.’ But if that business idea of yours is just screaming to be put into action, try the 3 Fs first, though cautiously.
If you’re fortunate enough to have family members who won’t mind investing in your idea and in you, go ahead and get them in.
Likewise, if you can get your best friends to buy into your idea/business venture, draft up an IOU or a promissory note or other agreement and get them on board. This is a reminder here to document everything. Leave nothing as word-of-mouth. That simply doesn’t do if something goes south.
And then, of course, there’s always venture capitalists or angels. (Not that these investors are fools). But ever so often, one can find an overanxious business mogul who is eager and ready to bet on a business idea if they can see a future for it. These are wealthy individuals who are prepared to risk their investment (capital) into new business ventures with the highest hopes of making substantial profits in the future if the venture is successful. Put simply, they are people who make their money investing in other businesses. If this is indeed an option for a startup, the necessary paperwork must be done up, and all terms and conditions must be well-read and understood by all the parties involved before going further. We must reiterate – never depend on word-of-mouth agreements. We know you’re excited to get your business off the ground, but it pays to do business the right way! If you can find honest and serious venture capitalists or angels, they are a great way to fund your startup. Most venture investors come with a wealth of knowledge about business, lots of connections and business advice to help you earn them profits. Be careful though, as VCs may change the direction of your business venture and this may not align with what you dreamed of.
Business Credit Cards
Individuals can apply for business credit cards as a source of access to some small funds. Credit cards can provide a great outlet of funding to get your small business off the ground.
All financial institutions are equipped with several options of credit cards that individuals can apply for.
Many financial institutions offer some kind of reward system for their cards, such as cashback rewards and “Get your ‘loan’ and credit card on one card”. This can be a great solution for startup Entrepreneurs seeking small funding. Of course, credit cards require one to be cautious with its use. If funds are not repaid within the initial interest-free period, charges occur.
Click here for First Citizen’s Bank credit card information https://firstcitizenstt.com/personal-banking/credit-cards.html
Click here for Republic Bank’s credit card information https://republictt.com/creditcardbenefits
Click here for Scotia Bank’s credit card information https://tt.scotiabank.com/personal/credit-cards.html
Small Business Stimulus
(Meant for existing businesses but worth the read)
During, and post-covid-19, several banks would have participated in the Government of the Republic of Trinidad and Tobago’s Stimulus Loan Programme, as of March 2020 for some, and July 2020 for some other financial institutions. Unfortunately, the rollout period for this Stimulus Loan ended on September 30, 2020. This Programme offered assistance at an opportune time and was a government-sponsored loan programme of up to TT$300 million to help small, and medium-sized businesses impacted by the COVID-19 pandemic.
These had an interest rate, paid by the government so one did not have to factor this into one’s monthly outgoings for the duration of the loan term.
Though the time frame has long lapsed, and this facility may no longer be available, you can reach out to your bank to check the availability and access of any other small business loan assistance programme they may have. Micro, small and medium-sized startup businesses are usually at the mercy of our commercial banks since these new businesses usually cannot provide the business assets (collateral) needed to secure a loan. The banks will try to avoid these risks as they are asset-based lenders. As a result, those now starting their businesses are not left with this option for raising capital.
Keep in mind too, that banks do have long lists of requirements that must be met satisfactorily in order for one to be approved for any kind of loan. One can expect that in this present economic time, that the banks will need reassurance that repayment is possible within a specified time frame. This would mean that your business documents must be in order and that you can show clearly and explain your source of funds for the present and projected periods. Failure to provide sufficient, relevant information, along with the required business documents will ensure that you are not even considered for the loan.
For our Tobago readers: Strategic Business Support and Development Unit. The BDU supports the growth and development of start-ups and existing businesses in Tobago. https://fte.tha.gov.tt/enterprise-development/strategic-business-development-unit/
You might be interested in NEDCO's Entrepreneurial Relief Grant.
Crowdfunding
Though the concept of crowdfunding has been around for years, it isn’t yet all that popular here. However, with the lack of funding opportunities for small businesses by financial institutions and the increase in the difficulty of attainment for some government grants, more and more persons in the Caribbean are opening up to the idea of Crowdfunding.
Crowdfunding is a means by which individuals can start a funding campaign for a project, business, or other venture by asking the public to invest. This way, individuals can raise small sums of money from a lot of people. Those starting a business may ask the public to invest in their idea before it is even launched to help get them started.
To ensure that your idea for a business leads to interests, be sure your idea: meets a need, solves a problem, and excites people. If done right, crowdfunding can be successful. People have raised funds for health, for trips around the world, and even for movie production.
Here is a local platform for crowdfunding donations: https://fundmetnt.com/page/about
Related: Types of Crowd Funding
Related: How to Crowdfund Like the Pros And Get (Lots of) Money for Your Idea
Business Overdrafts
An overdraft is a facility granted by banks that allow business account holders to withdraw more money than they actually have in their accounts.
Overdraft protection is usually seen as a financial safety net for individuals.
There are stipulations that must be met before the bank approves this facility. Interest rates and special charges may apply, and you can contact your bank and branch to see what they offer. Most business chequing accounts will have the option for the overdraft facility.
For easy reference, we have linked the information we found for some banks below.
Republic Bank offers a 3 in 1 Business Package of a Commercial Chequing Account, Free Online Banking and Free Night Safe Service, with an overdraft facility with a rate of $23 per month.
Be sure to find out what are the risks involved when you sign up for the overdraft facility with your bank. In a way, it’s a flexible loan, but with a much higher risk.
At the time of publication, these are presently the best options and most thought-out ways to raise capital to get your idea off the ground.
Support Organisations
In support of local economic development and as part of its wider efforts to foster sustainable development throughout Trinidad and Tobago, corporate organisations like Atlantic LNG, have engaged in initiatives that financially supports and promotes MSMEs. Support loans are given to assist the start-up and expansion of sustainable micro, small and medium enterprises (MSMEs) and entrepreneurs interested in business opportunities not related to the traditional oil and gas sector. If you are in the locations of Point Fortin, La Brea, Chatham, Buenos Ayres, Cedros and Icacos, then this may be an option of funding for your business.
"LEND was established in 2014 to fund the start-up and expansion of sustainable micro, small and medium enterprises (MSMEs) and entrepreneurs interested in business opportunities not related to the traditional oil and gas sector. LEND issued its first loan in December 2014, and as at the end of February 2020 had issued 561 loans with a total value of $16m." Trinidad and Tobago Newsday, Kim Chee Hing, Wednesday 15th April 2020.
You can read more about Atlantic's initiative here:
https://atlanticlng.com/sustainability/society/local-economic-development/
In closing ~
Our first recommendation to prospective startups would be to prepare yourself financially for opening a business and to have a pool of money from which you can use to launch and at least start operation. Unfortunately, we’re not that built into a culture of planning and having an idea forming in our mind is just a green light to ‘Go’.
If this is the case, then consider each option carefully and decide which is best for you. Unavoidably, they all come with a cost and some level of risk, but hopefully, there’s certainly one that fulfils your startup needs.
If none of the above is within your reach, or not to your choices, then you can work (find a job), keep your 8-4, continue learning and take the time to put things in place financially and otherwise so you can build your business with your own funds. Quitting your day job may not be the best option at this time. Do think carefully about the decisions that would impact your life and business.
We know you’re anxious to start but take your time and try not to rush into making any kind of financial decision without first understanding what is involved, not only in the decision-making process, but after the decisions are made.
Best of luck starting your new business and be sure to reach out to us for any further questions you may have in any area of your startup!
Related: Why local banks reduced card USD limits
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