Covid-19 affected very many businesses, but a good number of them are now on recovery path.
In this recovery period, access to funding is an increasing need for many businesses especially after the outbreak of the pandemic.
How can your business access funding?
Traditionally there are two main types of financing. The first is equity financing which happens when an investor is given some ownership in the business in exchange for a capital injection.
Debt financing on the other hand occurs when your business borrows for capital projects. The borrowing could be done from financial institutions or individuals. Either way there is a requirement that whatever has been borrowed be paid back usually at a premium and over fixed intervals. Defaults will lead to punitive action by the borrower.
Hybrid financing comprises the above two main types of financing. This is where a business opts to raise capital using the two methods simultaneously. Your business could bring in an equity partner while at the same time borrow part of the capital.
Due to the pandemic supply of funding has also been challenging. Equity investors are not making a lot of equity injections while many businesses are sceptical of further borrowing to raise capital.
Grant funding has increasingly become an option for businesses to raise capital. Grant funding occurs when a third party usually a donor gives funding to businesses without any expectation of equity ownership or repayment. It is usually given by non-profit making entities and angel investors. Most often, grant funding is done by donors who have a special cause.
There are different types of grant funding according to experts. Competitive funding happens when funds are given to a business after a rigorous competitive process is followed. The winner then receives the grant. Formula funding is given to a select target group. For example the donor may decide to give grants to businesses owned by African women. The Kenyan government has in the past given both types of grants.
I have witnessed an increasing rate of grant funding during the pandemic. How do you position your business for grant funding? Grants are usually accessed through proposal writing, a skill not many people have. It is therefore worthwhile to consider engaging an expert to help you write the grant proposal. It is important to make sure your business is positioned to receive grants by ensuring it is compliant and internal structures are set up. Donors will be looking out for that.
Check for eligibility of the grant. Where you can, take steps to make sure your business is eligible. It is important to be prudent even as you submit your grant application.
Avoid disclosing too much information that may be abused. Remember to secure your intellectual property rights where you can. There have been some incidences where the calls for grant applications, were an avenue for the "donor" to receive data and ideas in unethical ways.
You must do a background check on the donor. This is especially so as to comply with money laundering laws. It is important to make sure the donor has integrity before receiving their funds.
You need to check if you and the potential donor matched value-wise. You will need to consider if any tax issues arise from receipt of the grant. In some instances, donors are tax exempt in others they are not. You will need to verify that and take steps to be compliant.
In the event you get the grant, then it is important to carefully read through any documentation provided for by the donor.
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