There are so many forms of financing entrepreneurs in Zimbabwe.
This includes
internal and external forms of finance. Internal finance includes retained profits,
share capital and internal forms includes bank loans bank overdrafts, private equity.
There are also personal sources which includes saving, borrowing from friends and
the use of credit cards.
To start with, the entrepreneurs in Zimbabwe can get finance from retained profits.
This is the cash that is generated by business when it trades profitably. Retained
profits can generate cash the moment trade had begun. For example at start, sells
the first batch for seven hundred Zimbabwean dollars cash which it bought for three
hundred Zimbabwean dollars. That means the retained profits are four hundred
dollars. This retained profit can therefore be used as finance by the Zimbabwean
entrepreneurs for further expansion of the business or to pay for other trading cost
and expenses.
Share capital is also another form of finance used by entrepreneurs in Zimbabwe to
finance their [Link] this case capital is invested by the founder. The founding
entrepreneurs may decide to invest in the share capital of company founded for the
purpose of forming the start-up. This is the common method of financing a start-up
entrepreneur. The founder provides all the share capital of the company, retaining
100% control over the business. Moreover the entrepreneur maybe using a variety of
personal sources to invest in the shares. Once the investment has been made, it is
the company that own the money provided. The shareholders obtain a return on this
investment through dividends [payments out of profits] and or the value of the
business.
Under external sources, there are bank loans, the Zimbabwean entrepreneurs can get
loans from the banks with the bank starting the fixed period over which the loan
provided. The rate of payment, the timing and amount of payments. The bank
requires a collateral security normally comes in the form of personal asserts and
generally at lower rate of interest that a bank overdraft, but they don’t provide much
flexibility.
There is also bank overdraft, it is a short term kind of finance which is widely used by
entrepreneurs in [Link] overdraft is really a loan facility .the bank lets the
business owe it money when the bank balance goes below [Link] return for
charging a high rate of interest. Overdraft is a flexible source of [Link] the sense
that it is only used when needed. A bank overdraft is excellent in helping an
entrepreneur to handle business in seasonal fluctuations in cash flow or when the
business run into short cash flow like major customers fails to pay on time.
Private equity is also a major source of finance used by entrepreneurs in Zimbabwe.
It is a specific kind of investment that is made by funds managed by investors. They
don’t depend much in small business they invest in large amounts. They prefer to
invest in businesses which already established themselves.
Share capital is also the source of outside or external sources of finance .the main
source of outside investor is family and friends of the entrepreneur .opinion differ on
whether friends and family should be encouraged to invest in a start-up company.
They may be prepared to invest substantial amount for a longer period of time. They
may not want to get too pitfalls. Almost inevitably tensions develop with family and
friends as fellow shareholders.
Business angel is the main kind of external investor in an entrepreneurial business.
Business angels are professional investors who typically invested a large amount of
capital. They prefer to in business with high growth prospects. Angels tend to make
their money by setting up and selling their own [Link] other words they have
proven entrepreneurial [Link] addition to their money, angels often make their
own skills, experience and contacts available to the company. Getting a backing of
an angel can be a significant advantage to entrepreneurs to start their businesses
though he/she needs to accept a loss of control over the business.
Besides internal and external sources of finance explained above, entrepreneurs also
have personal sources of finance; to start with, saving is when the entrepreneur will
often invest personal cash balances into a small business. This is a cheap form of
finance and is readily available. The decision to start a business is often by a change
in the personal circumstances of the entrepreneur. For example an inheritance
investing personal savings maximises the control of the entrepreneur keeps over the
[Link] is also a strong signal of commitment to outside investors or providers of
[Link]-mortgaging is the most popular way of raising load related capital for an
entrepreneur to a start a business. The entrepreneurs take out a second or large
mortgage on a private property and then invest some or all of this money into a
business fails, then the property will be lost too.
The entrepreneurs can also borrow the capital from friends and family members.
This is common; friends and family who are supportive of the business idea provide
money either directly to the entrepreneur or into the business. This can be quicker
and cheaper to arrange when it is compared with a standard bank loan. The interest
and payment terms maybe more flexible than a bank [Link] is however stressful to
the entrepreneur particularly if the business gets into difficulties.
More so there is also use of credit cards as a source of finance. The entrepreneurs
tend to use credit cards commonly amongst all businesses. Each month, the
entrepreneur pays for various business related expenses on a credit card.15 days
later the credit card statement is sent in the post and the balance is paid by business
within the credit free period. The effect however is that the business gets access to
a free credit period of a specified long period.
The entrepreneurs in Zimbabwe also get finance from other individual retirement
account into the business turning retirement savings into working capital. This type
of financing incurs to no debt or interest payments. But does deplete a business
owner’s retirement account ,while also putting it at [Link] will be therefore only
advisable for business owners who are sure that their business are sound and that
the money will grow safely.
A small business owners who cannot get credit, whose credit lines have been
reduced or revoked ,who just do not want the hassle or high interest rates attached
to other forms of financing. A business saving account can provide a ready source of
cash that can be tapped into when necessary. This is essentially an emergency fund
to be used only to offset temporal cash flow problems but not too much for capital
improvements or other purchases. Such a fund can help entrepreneurs in Zimbabwe
out of debt and forgo the need to borrow.
More so there is also inventory financing; these are several forms of financing that
utilise a firm’s inventory as collateral for loan. Inventory financing can provide a
valuable source of capital for business that sell high priced items that don’t move
quickly .such items include luxury items or for businesses that need to display large
amounts of merchandise and thus must carry a substantial inventory on their sales
floor or in the warehouse .lenders are rapid as inventory is sold off.
There is also a merchant cash advance, it is another method of receivable financing
wherein a lump sum of money is given to a company or entrepreneur against his/her
future credit cards sales. The lender collects set percentages of company’s daily
credit card receipts until it recovers the advanced amount plus premium. The
advantage being no actual date for the loan to be repaid, no collateral, and since the
money collected by the lender is percentage of monthly credit card sales, a slow
much for the business can lower the amount of payment, with no penalty. Also there
is no interest rate attached to a merchant cash advance because it is not considered
a loan.
AUTHORS;
Stokes D [1995] Small business management; London Tata
McGraw-Hill
Active Learning Approach
Stokes D & [2002] Entrepreneurship New Dehli Tata McGraw-
Hill
Peters M P
Zimmer TW & [2005] Essentials of Entrepreneurship and New Dehli
Prentice Hall
Scarborough Small Business Management
NM
Holt D T [1992] Entrepreneurship London Prentice Hall
UNEP [2007] Design for Sustainability; New York SCP
Publications
A Practical Approach for
Developing Economies