RAISING CAPITAL FOR YOUR START UP VENTURE (9)

By Ayo Emakhiomhe.

INSURANCE


Insurance involves hedging against a contingent loss or damage. It involves the equitable transfer of risk of a loss from one entity to another. (www.wikipedia.org).

Insurance is usually carried out by an insurance company (known as the insurer) for an insured entity who is the one paying for the insurance or taking up the policy as a policy holder. What the policy holder pays is known as premiums. Premiums are paid on a periodic basis or per transaction as the case may be.

There is a policy for all type of risks; from life insurance to marine, theft, burglary, fire, vehicle, business, fraud, burials, to endowments of all kinds.

This means that insurance is an integral need to every business and every person.

But, it is also a very good source of raising finance for your business or projects.

INSURANCE LOANS: Some insurance companies provide individual or business loans at an interest to their policy holders. This loan in form of cash is usually for a certain percentage of the policy holder’s premiums to the insurer.

Once the policy holder has been able to establish a business relationship with the insurer, and having met terms and conditions set by the insurer, the policy holder can request for certain cash loans from the insurer to fund a defined need which the policy holder can use to fund a business.

BONDS/GUARANTEES: A policy holder can also request for insurance bonds to fund projects like construction contracts, supplies, etc.

An insurance bond is more like a guarantee by an insurer to a third party to make for any loss in capital and interest on behalf of an insured if based on the terms on the bond, the issuer fails to do so.

COLLATERAL FOR LOANS: An individual can also take personal loans from financial institutions like banks backed by a life policy as collateral.

The life policy can be an individual/group life policy. This is usually carried out at an interest to the holder of the policy based on terms and conditions as stipulated by the insurer.

ENDOWMENTS/FUNDS: One can also set up an endowment and drawdown on it (based on defined terms and conditions) or use it as collateral to get financing from institutions like banks.

So many ways of funding outside the ones listed above exist from insurance companies. All it takes is approaching an insurance agent/broker today.

The insurance option of funding is not popular in Nigeria but it actually exists.

To employ any of the methods outlined above, you must have already done your research/feasibility study and prepared a business plan. If you have not, please prepare that first before deciding which method or combination of methods will best suit your business plan and needs.

If you do not have a business plan, you are like an army general that went to war without any combat strategy, he and all his men were killed in battle.

Also, always Endeavour to start small; Even if you have all the capital to hit the high market with your product or service. Always start with just a small test first. Do a Test run of your venture before slowly releasing funds to grow it to size. By doing this you will see any small problems that otherwise would have been hidden by large outlays and your mistakes and losses will be small. Also, backing out if necessary will be at minimal loss/damage.

Don’t forget to read a book today.

We wish to apologise for the long absence and silence on this blog. It was due to some technical issues that have now been resolved. We had so missed you guys and would ensure such a long silence does not reoccur in future.

Thanks to all those that sent emails and texts. Please keep them coming.

Please don’t forget to visit our blog on leadership- www.zerofactorleadership.blogspot.com

emakhiomheayo@yahoo.com
coinboxlimited@gmail.com

RAISING FINANCE FOR YOUR SMALL BUSINESS (case samples)

  Ruth is a sole proprietor who runs a small business that resells quality female clothes and accessories. The business is somewhat a pass time that now turned out to be lucrative; making returns that she knows can be more than what she makes from her regular job if she gives more attention to it.

At some point she decides that the business is ready for expansion and to cut her costs and increase turnover, it was high time she imported the clothes herself instead of reselling.

To import the clothes she is faced with the dilemma of cash in large volumes to pay for the goods. The banking system in Nigeria is not small business friendly and so she looks for ways of raising these funds.

That’s when we recommend she gets and uses a credit card because all she needs for her transaction cycle is funding to buy and pay for the goods and almost immediately sell the goods at a profit and get her payment over a maximum period of 30 days.

The whole procedure of acquiring a credit card, getting travel documents and doing her shopping takes a period of like 90 days but she pays for her goods and gets delivery in the last 15 of those 90 days and even gets all her stock sold out and paid for in 10 days thereafter, so she even completes her payment cycle in less than the 30 days envisaged.

As if the new expanded business and income is not enough joy, the companies she buys her goods from sends her emails notifying her that if she can maintain or even exceed her current business level with them for the next 90 days, she can get the goods supplied to her and she pays after 90 days.

Based on that, it means that she now has current capital funds and twice that in another 90 days to grow her business further thanks to the credit line that will be available then.

BY AYO EMAKHIOMHE 

More by next post.