• Wednesday, February 28, 2024
businessday logo


Just before you decide to approach the bank for a loan – BINK™


It’s not unusual that anytime you meet with budding entrepreneurs or business owners, the topic shifts to finance. They often talk about the challenges of obtaining finance to run their business, expand, hire quality staff or just get by.  More often than not, these businesses are turned back by banks, adding to their frustrations. I mean all they want is a little “help” on the way to fulfilling their perfect business!

The challenge often times though is that their ‘perfect business’ is only seen by them. No one else understands their business, and they do not know

how to articulate this ‘dream’ business to anyone else. I usually don’t advise start-up businesses to approach banks for loans to start their business. As much as possible, they should look to generate as much internal capital as possible. For many small businesses and start-ups,

there is so much emphasis on equity or debt capital that they tend to overlook the vast amount of capital that is available to them. Equity and debt capital are the easiest forms of capital to measure. That is probably why there is much emphasis placed on these, but I’d like to introduce businesses to other forms of capital, which if harnessed well, could attract the most common form of capital- debt or equity. I call this the BINK™ capital.

What is BINK?

This is an acronym that stands for:

•Brand Capital

When your business is mentioned, what’s the first thing that comes to the mind of your customers? That’s your brand. Businesses have got to build up this capital in the same way they go about looking for cash. The multinationals understand this form of capital, so they invest a lot in sponsorships, CSR campaigns, strategic refreshes and the likes. It’s an emotive part of business which is already being measured. Why do customers choose one brand above the others? Small businesses need to focus on this critical fact of capital. To put this in more context, this has to do with answering the question of ‘what does my business stand for; what do I want to be known for?’ This will include agreeing to a set of core values with partners, staff or fellow shareholders. Even if you are the single employee, commit to things like time- keeping; prompt service, excellent customer service, well-packaged products, crisp business proposals. Many businesses wait until they get large before they focus on these items, but the best time to focus on these things is now, because it can even be the difference between attracting further capital.

Your online brand is also very important. With virtually every type of information just a click away, businesses should be mindful of what they put online. Furthermore, since most small businesses are inextricably linked to the businesses owners, they should also watch what they post or say online, as this adds to their overall brand and perception.

•Integrity Capital

A number of small businesses complain about financial institutions asking for collateral or security before granting loans, whereas they sometimes lend to larger companies on a clean or unsecured basis. The answer to that is that those large companies have built integrity over time. A development expert put it perfectly when he mentioned recently that ‘all form of lending is secured.’ It could either be secured with physical assets or intangible assets- like integrity. And that’s the truth.

Businesses have a greater chance of accessing funding if they have a reputation of keeping to agreements, meeting past obligations and conducting their affairs generally in an upright manner. These things count, and they show. Again, just like the previous point above, because small businesses are linked to their owners, the integrity of the promoter also comes to play. How your record with your previous employer; what do was your suppliers say about you’ what’s your credit history; if we were to do a search online, what would we see? The bottom line is that integrity attracts physical capital, and small businesses should capitalise on this. Because of the way the conduct their affairs, they can attract other high ranking individuals to join their boards or advisory committees. This can also be a boost when sourcing for funds

•Network Capital

No one exists in a vacuum. There is a popular saying – Your network equates your net worth. Small businesses have got to sweat their contacts.

This might involve looking back over your school, work life or even within your family. Who has what you need, which individuals or companies can you leverage on. This is where your brand and integrity capital comes to play.

You could call up your old school professor, ask them for advice, get them on your advisory committee, ask them to invest in your business. Build credible relationships with suppliers. You can approach them for concessions or ask for extended credit periods. This is a cheaper source of financing than bank loans. Apart from your previous contacts, businesses should also be on the lookout for new contacts.  Basically, you have to know what you’re looking for so that you don’t just add everyone to your business, even if they don’t have the right fit. The aim is to find individuals or organisations who will add to your brand and integrity capital. Potential networks have also been expanded through the internet.

If you are a local company, seek to partner with international companies in the same line of business or who are willing to offer franchises. Don’t limit your network to only your physical contacts. As a matter of fact, if you are able to get an international franchise or partnerships, funding will be easier than would have been the case otherwise. Bear in mind though that these foreign organisations will most likely ask around to ascertain your profile, brand and suitability. That’s why it extremely important to get the first two aspects of capital mentioned above right.

•Knowledge Capital

As a small business owner, who is struggling to find cash, you’ve got to ensure that you are the ‘go to’ person for issues in your industry.

Thoroughly understand your market, your industry your clientele, global issues facing your industry and monitor changing trends. If you haven’t got the cash, it’s the least you can do! As we’ve seen a number of times, intellectual capital or knowledge capital attracts funding. In this era of lean businesses and virtual offices, small business owners should shift their emphasis from large offices spaces, huge loan requests and bank proposals. Of course these are important, but they should not be the overriding focus. In the knowledge economy, larger companies are buying up small companies who have a unique product, a novel item or a knowledgeable team. Because smaller companies are nimble, closer to the customer and usually have individuals who understand the whole value chain, they and their staff are a huge source of knowledge and expertise for larger firms.

The key here is to ensure that you keep updating your knowledge and that of your staff. As a matter of fact, when you eventually discuss your proposals with potential financiers, they’ll be impressed with your knowledge and expertise. You can also leverage your knowledge by agreeing to coach some of your competitors or forming an association. This could also turn into an extra source of cash for running and funding your business. The key here is to be sure that you have the necessary patents or licenses needed to profit and protect your intellectual property.

It is only after businesses have sweated the BINK™ capital that the equity or debt capital will find its way to them. More often than not, because cash is easier to measure, many businesses believe they just need to get cash in- and sometimes they do. However the cash could quickly evaporate if they don’t have the other issues sorted out.

The advice to small business owners and start-ups, is that rather than complain about the lack of cash funding you are getting, seek to get the best out of what you have. Focus first on those softer issues, which the formal financial system has not devised means to measure effectively, but which go a long way to ensuring, not just funding but also the long term sustainability of your business. I think the challenge often times is that these pools of capital (BINK™) is not a one day affair, but is one that is built over time. In any case, most businesses will realise that once they are able to build their BINK™ capital, it will be easier to attract the most common form of capital. You are also in a better position to negotiate with potential equity and debt financiers became you have added value to your business.

So, before you blink about the problems of obtaining cash to start or grow your business, make sure you BINK™!

OgucheAgudah is an associate of both the Chartered institute of bankers and stockbrokers Nigeria. He currently works as a special assistant to Nigeria’s minister of Industry, trade and investment with a focus on improving the access of Nigerian businesses to finance. He can be reached on [email protected]