Small Business Finance - Unorthodox Options

Working through the rigorous chain of processes, trying to secure a license or permit to start a business or trade can be difficult enough, now add to that the great worry for most; how do I raise the capital? For long this question has been recurring, experts in the field of business finance have turned out series of books and articles on the best ways of raising the necessary funding, but if one looks closer, you will discover that as the capitalist society is class ridden, so does it affect the rules as they relate to business finance.

I would want to draw attention to the funding options available to the poor, or putting it more correctly; the financially challenged. From my observation, it is clear to me that on average, the poor pay more for services than the well off in the same city. If you think this to be farfetched, then consider how much a family occupying a one room shack pay to buy water from a selling point on a daily basis as their deprived neighborhood is not connected to the mains, in contrast to what another family living in a wealthier suburb pays for a similar liter of water.

Over here in Nigeria, it is common to hear people patronizing finance houses and money lenders who charge as high as 10% to 15% interest rate per month. I believe you are wondering aloud "that's Outrageous", but to those securing such loans, they feel they are being done a favor. The fact is having a low or non existing collateral base, limits the option of being able to secure loans from the banks. They then look for funding anywhere they can find. This restricts their business prospect to acquiring stocks and getting rid of them (selling) as many times as possible before the debt matures. Such businesses have a relatively small non-current asset, also, long term planning and expansion is difficult.

Now with all said, there are some ingenious methods that are being taken advantage of. I will like to put forward a contributory scheme I thought of, it involves shop owners and trades men committed to making regular weekly contributions to a pool of fund, on attaining a minimum of twenty weeks of contribution, a member can apply for a loan that is double the total contribution made so far. It all adds up as half the members are active while the other half are not at any point in time. Now the cooperative must be formally structured with it accounts in line with best accounting standards, furthermore, its books must be subject to periodic audit. On the basis of this, I propose that the cooperative can then serve as a guarantor for further loan not exceeding the value secured from the cooperative. This is based on the financial requirement of a members' business need.

With the role of the cooperative standing as a guarantor of further loans from the banks come more challenges. What if the member defaults? This creates the need for the cooperative to do the necessary background check on members' credibility and also make sure only those with a track record of paying back their loans on time qualify for bank loan guarantee.

Taking a critical look at the entire deal, one will observe that members of such cooperative on average will be getting access to loans at below the bank interest rate. This will afford them the opportunity of having the financial flexibility to expand and entrench into the business assets that would generate better efficiency.