“Loan or Equity”: Expert Advises on Best Source of Capital for New Business
- Femi is planning to start his own noodles business but need a large amount to set up
- He expressed worry about the next cause of action that would not harm the business
- A financial expert advised on what to do to get the money needed for the business
Legit.ng journalist Zainab Iwayemi has over 3-year-experience covering the Economy, Technology, and Capital Market.
Femi has been a salesperson for a company retailing noodles in Lagos for over a decade, but now he wants to start his own business.
Source: Getty Images
He is looking to leverage on the connection and experience he has built over time but the source of capital is a major concern.
He said,
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“I am starting my company soon but I am a bit confused about whether to start with loan from the bank or raise an equity.”
Expert Advises
Wole Ogundare is the managing partner and CEO at Carthena Advisory. He has over 27 years of comprehensive enterprise expertise that cuts across strategic management, financial advisory, business optimisation and board leadership.
Responding to concerns of Femi, he said,
I usually advise the mix. Dangote, the richest man today has loads of loans.
In terms of procedure, you must bootstrap at first. You must start with equity because whoever is loaning you will want to ask what have you done with your own money at first.
You must bootstarp first to prove your concept will work after you must have done research, and to prove you can survive the market and then afterwards you can go for the loan.
Depending on what you want to do and how fast you want to grow, I usually advise people “Don’t try and grow too fast” because a lot of lessons and failures will happen during that period.
If your business is worth N1 million, your loan should be somewhere around 40%. If you get a loan that is far above your equity, you will be in trouble. You can get initial 20%, see how it goes, get another 20% and then reinvest the profit, so it means you are still with the 40% loan but you have reinvested the profit.
The problem with a lot of people is that when they see they are a bit successful, then they start to lavish. That doesn’t work. You are gonna crash in a short space of time. I advice people on how to grow in incremental basis.
World Bank approves new $2.5 billion loan
Legit.ng reported that the minister of Finance and coordinating minister of the economy, Wale Edun, disclosed on Thursday, June 13, 2024, that the World Bank approved two significant support packages for Nigeria.
The loans are part of President Tinubu’s ongoing plans to stabilize Nigeria’s economy, reposition it for growth, and provide quick support to the poor and vulnerable Nigerians.
The minister stated that the government is undertaking reforms to restore macroeconomic stability and contribute to sustainable and all-encompassing growth in Nigeria.
Disclaimer: The advice in this article is general and not intended to influence readers' decisions about relationships. Readers should always seek professional advice that considers their circumstances before making any decision.
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Source: Legit.ng
