Off Bank Loans: Top Nine Alternative Funding Sources For Business

Many people have brilliant business ideas that never materialise due to limited funding. Quite often, these lack collateral and other key requirements to obtain a bank loan.

However, besides banking, there are many alternative sources of financing your business.

Business Focus  brings you the top nine (9) alternative sources of funding that will either help you kick-start your business idea or boost your already existing business. Read on!

Agriculture Credit Facility

The Agriculture Credit Facility (ACF) was set up by the Government of Uganda (GoU) in partnership with Commercial Banks, Uganda Development Bank Ltd (UDBL), Micro Deposit Taking Institutions (MDIs) and Credit Institutions all referred to as Participating Financial institutions (PFIs).

The facility is intended to provide medium and long term loans to projects engaged in agriculture and agro-processing on more favourable terms than are usually available from the PFIs.

The scheme is administered by the Bank of Uganda (BoU), with provision for a maximum grace period of 3 years and the interest rate to the final borrower being a maximum of 10% per annum.

The maximum loan amount to a single borrower is up to Shs.2.1billion. However, this amount can be increased up to Shs.5billion on a case by case basis (for eligible projects that add significant value to the Agriculture sector and the economy as a whole).

There is no designated minimum loan amount to the final beneficiary (farmer/ agro-processor), but BoU can only reimburse a minimum of Shs10million to the PFIs.

The maximum loan period should not exceed 8 years and the minimum should be 6 months.

Investment Clubs

An investment club is a group of people who pool their money to invest in ventures they deem profitable.

Usually, investment clubs are organized as partnerships and, after the members study different investments, the group decides to buy or sell based on a majority vote of the members.

Investment clubs provide great networking opportunities, which provide members a platform to learn more about markets and running their businesses.

The club meetings and working with people who have similar interests fosters the development of group relationships and member’s personal and social skills.

Each club member who is part of an investment club contributes a certain amount of money monthly to the investment club account.

Then, using the account, the members of the club agree on where to invest their savings: purchasing land with the intention to sell at a profit, shares, rental property or even businesses.

Banks like dfcu, Centenary and Barclays among others have investment clubs. Dfcu’s Women in Business is one of the growing investment clubs in the country; a number of women have registered great success after joining it.

Currently,   the program has over 12,000 members and these receive specialized/tailored funding from the bank.

Centenary bank has SupaWoman club. As a SupaWoman, you will have the opportunity to save as an individual or as a group to raise money for investments, shall have networking opportunities, financial literacy training, health insurance at discounted premiums, access to business advisory services and loans among others.

It is therefore advisable to look for an investment club and join it for the benefits are immense.

Youth Livelihood Funds

The Shs256bn Youth Livelihood Fund is managed by Ministry of Gender, Labour and Social Development under the Youth Livelihood Programme (YLP).

Launched in 2013 by President Yoweri Museveni, YLP is aimed at addressing unemployment challenge in Uganda.

Funds are provided through Youth Interest Groups (YIGs) of 10-15 people in form of revolving funds (soft loans with friendly terms).

What is important to know about this programme is that there’s no interest for repayments made in the first 12 months and no physical assets or collateral is required.

However, only 5% per annum surcharge is repaid after the initial 12 months. The fund size depends on request made by the group ranging from Shs1m to Shs25m.

Skills Development Fund

This is being managed by Private Sector Foundation-Uganda (PSFU). The private sector body received funds worth US$300,000 from the World Bank through the Government of Uganda to undertake a project named Skills Development Fund (SDF).

This project mainly looks at providing practical skills to companies and Ugandans at large in sectors like agriculture, manufacturing, construction and auto mechanics.  Large companies and well organised groups across the country stand to benefit from this fund.

 Women Funds

In 2015, the Government of Uganda introduced the Uganda Women Entrepreneurship Programme (UWEP) aimed improving women’s access to financial services, equipping them with skills for enterprise growth, value addition and marketing of their products and services.

Women shall be availed interest-free credit to initiate or strengthen their enterprises.

Like Youth Livelihood Programme, the Shs53bn UWEP is implemented under the Ministry of Gender, Labour and Social Development and seeks to accelerate the entrepreneurial acumen of Ugandan women while empowering them for economic development.

Venture Capital

Venture capital is financing that investors provide to start-up companies and small businesses that are believed to have long-term growth potential.

For start-ups without access to capital markets, venture capital is an essential source of money. Risk is typically high for investors, but the downside for the start-up is that these venture capitalists usually get a say in company decisions.

Venture capital generally comes from well-off investors, investment banks and any other financial institutions that pool similar partnerships or investments.

Venture capital does not always take a monetary form; it can be provided in the form of technical or managerial expertise.

There are a few venture capital firms in Uganda and many international ones that often active in the Ugandan market.

Innovations fund

Last year, President Yoweri Museveni directed for a fund to be created for ICT innovation. The Shs15bn annual fund aims to facilitate the development of ICT innovations in Uganda. For innovators especially in ICT, this fund is for you.

Grants

A grant is a quantity of money given by a government, organization, person or family for a specific purpose. Unlike a loan, you do not have to pay back the grant money – in some cases, study grants have to be paid back if the person abandons the course.

A grant may come in the form of money for a student to study, for a team to carry out research, money to improve the insulation in your house, expand a community project, or funds to set up a business.

Using internet or keeping glued to Business Focus, you will come across many grants. For example, a number of upcoming entrepreneurs across Africa have benefited from The Tony Elumelu Foundation (TEF).

Crowdfunding

Crowdfunding is the practice of funding a venture or project by raising monetary contributions from a large number of people.

Crowdfunding is a form of crowdsourcing and consequently an alternative finance.

In 2015, it was estimated that worldwide over US$34 billion was raised this way.

The commonest platform used by Ugandans is indiegogo, which has raised capital for projects like MatatArt, a Kampala based social enterprise promoting access to Art for children and as a result to boost cultural development and social participation in the undeserved. It raised Shs56m

Another is Imperial blue that educates Ugandan film makers on the set of new international film features. It has raised Shs69m.

Others include; Musana Carts, the solar street vending revolution; SEGA film and Cricket without Boarders among others. Other platforms include; crowdrise, gofundme, givefoward, Kids etc.

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