Module 10: Financing

Learning objectives
Participants will gain knowledge about:

 Managing capital requirement

 Sources of getting capital

Financing merely means: “how does the woman entrepreneur raise the funds she will need to start
her own business?” Focus on: sufficient cash, personal resources, family and friends, public funding
schemes, suppliers giving credit, micro finance NGOs

In short, financing is the answer to the question of “Where do I find the money I need to make my
business operational?”

Contents
10.1 Capital requirement

10.2 Examples from lenders from Kiva

10.3 Financing experience from Southern India

References

10.1 Capital requirement

The way you calculate the company’s capital requirement is:

 Take the total amount from the Establishing budget

 Add the biggest cash deficit from the cash flow budget

 Together, the two show the company’s capital requirement

The figure you end up with will have to be financed one way or the other. The financing can come
from:

 Personal resources

 Families and friends

 Banks

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  Public funding schemes

 Micro loan organizations

 Suppliers giving credits

 Investors

 Other

Sufficient cash
Being able to anticipate the capital needed to carry out work in the business is of crucial
importance. If you are short of capital to carry out your plans it can be terminal to your business.

Cash crisis is often a killer of new businesses.

Obviously, there are many reasons why a company runs short of cash, but one reason can be that the
entrepreneur has not been able to raise enough funds to meet the actual financial requirements
arising after the setting up.

This problem is avoided by securing that your business is injected enough capital to meet its
requirements.

The two most frequent reasons that a company is undercapitalized are:

 From the beginning the entrepreneur has sought to save money or limit the expenses

 Sales are slower than anticipated – consequently, the entrepreneur runs into cash problems
due to lack of income

Penny-pinching
Generally, limiting expenses or saving money is not advisable as this also limits the firm’s activities
and ability to progress.

Thus, you must anticipate the necessary costs of realizing your concept and you should not doubt
the necessity of such scheduled costs.

Poor Sales
Often, getting things up and running takes longer than anticipated. Much longer. Starting up as an
entrepreneur, you first have to gain a competitive profile, call attention to your existence and your
competencies, convince customers of your expertise, etc.

This is time-consuming - VERY time consuming! If you think it will take six months to get
sufficient customers you should multiply this by at least two, just to be on the safe side.

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Therefore, it is important that you have enough capital to stand up to the hard and financially
sluggish initial period. You can take this penetration phase into account in your budgets by
budgeting pessimistically or set forth a worst-case-scenario.

Its purpose is to identify the worst possible situation for your company (slower sales than
anticipated or non-existent sales) and try to estimate the cost of such a situation.

The essence of business start-up funding is to inject the required capital into your business. This
allows you to dispose and act in anticipation of unforeseen events to prevent such events from
inhibiting the operations and growth of your company.

Personal resources
The first source of financing you should go to is yourself. Do you have money in the bank, assets
placed in buildings or diamonds? If you believe in your venture you should use your own funds
first. If you don't, it will be difficult to borrow money elsewhere.

Remember one of the five principles for successful women entrepreneurs is – The Affordable Loss
Principle: It is often said that real entrepreneurs take big economic risks in order to win big - or lose
big, but the most successful entrepreneurs limit risks by understanding what they can afford to lose
at each step, instead of seeking large all-or-nothing opportunities.

Instead of borrowing money to open a big restaurant with 20 tables they open a street kitchen, gain
experience and then slowly invest in a small restaurant with little staff, learn to manage staff and
purchase and then one day take over a bigger restaurant

Many entrepreneurs have little money so they have to go elsewhere for funding.

Families and friends

Family and friends can be a good source of financing, especially in the early stage of your business
when relatively small amounts of money are involved.

Consider borrowing from several people rather than trying to get it all from one person. This way,
you can ask for an amount from each person based on what they can afford to give you, and not on
what you need.

You could:

 Write down the names of everyone you know, regardless of how remote the relationship.
This might include family, friends, colleagues, mentors, teachers, neighbors, your dentist
etc.

 Circle the names of the people who have some insight into your character and/or personal
and business skills.

 Think about a realistic amount of money each person might be able to lend you, and write
down that amount next to their name.

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When approaching someone you know for money, it is important that you have made a written loan
proposal. It should be backed up by facts and figures. If you are just asking for the money is
practically a guarantee that you will be turned down. Would you not do that yourself? Be realistic
and professional.

The business plan you have been writing through this course is the proper tool to persuade your
friends and family.

Banks and Savings Banks

What do banks require to lend you money to finance your business start-up?

The best tool to obtain the necessary financing is a business plan and budgets.

Based on your personal, establishing, and operating budgets you can make a cash flow budget or
hire an accountant to work it out for you. A cash flow budget shows your expected borrowing
requirement in exact figures.

Present your business plan and loan requirement to your banker and discuss the future cooperation
between the bank and your company.

You are being evaluated

To grant your company a loan the bank will evaluate:

 Your personal background and personality in relation to your commercial concept

 Your mission, motives, strategy and contemplated business format

 Your selling scheme and marketing plan

 Budgets and borrowing requirement

Can you stand an evaluation?

Public funding schemes

All over the world different governments like to support entrepreneurs one way or the other. They
can, in their effort to promote entrepreneurship, set up financing schemes. The schemes can
promote rural development, high tech industry, biotech, the service sector or something different.
Contact your national, provincial or local government. They should know if there are any public
funding schemes in your area.

Micro-loan organization
In your community there might be a micro loan organization represented. These organizations give
small loans of 300 to 2000 UD dollars often to a group of women. The most known organization is
Grameen Bank, started by Professor Muhammad Yunus. Search Google for micro loan
organizations in your area.

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Suppliers giving credits
Maybe you are in a position where you can press your suppliers to give you 3 -5 months credit? If
you are, then they could help you finance your start.

Say you know a food supplier for chickens and you want to start a chicken farm. If you can
persuade him to give you 4-month credit. In that time, you can grow and sell live chicken and pay
back the food supplier.

All kinds of credit will help you get started.

Online Micro-Loan-Organizations
Kiva is an international nonprofit, founded in 2005 and based in San Francisco, with a mission to
connect people through lending to alleviate poverty. They celebrate and support people looking to
create a better future for themselves, their families and their communities. Investigate if this is an
option for your business. Go to www.kiva.org/

10.2 Examples from lenders from Kiva

Tiep's Group's story

A loan of $3,750 helps a Kiva member to buy
fertilizer for her longan [fruit trees] garden.

Mrs. Tiếp is a woman from the Kinh ethnic majority.

She lives with her husband, her daughter, and her son
in Mai Sơn district, Sơn La province.

The main income of her family is from cultivation and

breeding, so it is just enough to cover the living
expenses of the family and save a small amount. She
wants to buy fertilizer for her longan [fruit trees]
garden, but the amount she has saved up is not enough
for her to do. Therefore, she wants to borrow a loan
for this purpose.
Picture 1. Tiep's Group. Source: Kiva.org
She hopes the loan amount will help her family to tend the longan garden well, and that the coming
harvest of longan fruit will be abundant, so as to improve the living condition of her family.

In this group: Thoát, Sáu, Nhai, Mai, Tiếp, Hằng

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Maricel's story
Maricel is 30 years old and has one child in
school.

Maricel is in the agricultural business, raising

pigs in the Philippines. She requested a PHP
12,000 loan through NWTF to buy feeds,
vitamins and other supplies to raise her
livestock.

Maricel has been raising pigs for 9 years now,

and has borrowed in the past from NWTF to
sustain it. In the future, she would like to save
enough to provide a secure future for her family.
Maricel is 30 years old and has one child in
school. Source: Kiva.org

Losivale's story
A loan of $1,075 helps to buy taro roots (seedlings),
banana tubes (seedlings), a wheelbarrow, rake,
shovel, water tank, gloves, backpack sprayer, and
chemicals.

Losivale is a 51-year-old mother with 6 children.

She runs a small business selling taro and bananas
in her village to earn a living. She has been doing
this for more than 3 years. Losivale needs a loan to
buy taro roots (seedlings), banana tubes (seedlings),
Losivale is a 51-year-old mother selling taro a wheelbarrow, rake, shovel, water tank, gloves,
and bananas. Source: Kiva.org backpack sprayer and chemicals, to help her run the
business. She hopes to use her profit to expand her business and provide for her family's needs.

Kunthea Group's story

A loan of $1,000 helps a meember to pay for additional organic fertilizer, organic pesticide, and gas
for her farm.

Mrs. Kunthea, on the right in the picture, is a married mother of two kids. She is a farmer and has
been operating the farm with her husband, where they grow rice to generate a living, for the past 5
years. Being in this business, she and her husband can make around 12USD per day.

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 Since her business is going well, she is now representing
this group of two members to apply for a loan. She would
like to use her loan share to pay for additional organic
fertilizer, organic pesticide, and gas for her farm. She hopes
lenders will support her in this venture and believes this
loan will help improve her finances by increasing her
family's income.mber to pay for additional organic
fertilizer, organic pesticide, and gas for her farm.

Read more examples from www.kiva.org

Mrs. Kunthea, on the right in the
picture. Source: Kiva.org Good luck with your new business.

10.3 Financing experience from Southern India

A study made by Professor Rajasekharan Pillai about financing agribusiness start in Tamil Nadu,
India came up with these interesting findings:

“Raising required capital for the business, both in the process and in operation, infuses adequate life
to business. The basic philosophy of capital mobilization underscores cost-effectiveness. But only
those who are informative, have time and competence to explore and have proper networking can
access cost-effective capital sources. These attributes are luxuries for these seemingly marginalized
women from an under developed locality. The study could identify six sources of capital.

1) The propensity to mobilize fund from family friends circle was assigned top priority among the
six different avenues of fund mobilization. Such a decision is deemed very much logical, as these
fund sources may be either costless or cheaper. Entrepreneurs are to extra resource prudent to
enhance the positive net worth and be financially sustainable.

2) The second source of finance is local money lenders. Though reliance upon local money lenders
is seemed no longer be a viable solution, it is referred as hassle-free access to fund.

In between these two extreme sources of funds there are internally raised funds of 3) self-help
groups, 4) co-operative banks, 5) commercial banks and 6) funds channelized through government
sponsored employment generation schemes.

The women entrepreneurs contacted as part of the study belong to some self-help groups. It is
understood from the study that about 63% of women entrepreneurs depended on informal sources
(family/friends circle, self-help groups and money lenders) of fund. Comparatively low reliance on
formal sources (co-operative banks, commercial banks and employment generation schemes) of
funds, overtly shows either the reluctance of the target group to approach such institutional sources
or blatant denial by the agencies concerned.”

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Reference
[1] Entrepreneurship: A Saga of Transfiguration and Survival, Dr. K. R. Pillai, MSN Institute of
Mgt. & Tech., Kollam, Kerala, Dr. Robert E. Chester, Birla Institute of Technology, Bahrain:
DCMS Journal of Management, Vol. 7 & 8(1 4), Dec - Jan 2012- 2013, pp. 19- 31,