How and where do I get money to start or expand my business?
This is usually one of the most important questions an entrepreneur or business owner has. Obtaining funding for your business can be tricky. With the proper collateral and great credit, you can secure funding through traditional sources such as banks. Those without it can also get funding through friends or family’s lending. But these days, bank loans are becoming harder and harder, especially with the limitations in the Ethiopian financial sector. However, just because you can't get a bank loan does not mean you cannot find financing for your business. Perhaps, the time has come to think about equity financing if debt financing is not working for you.
Equity financing is the practice of raising funds by selling a portion of your business to investors. In exchange for the funds, the investors take a share in your business and profits. This may seem "easy money" because it involves no debt. But by selling equity interests in your business, you sacrifice some of your autonomy and management rights. Even so, equity financing is a great source of finance as it improves your cash flow by reducing your debt service payments.
In Ethiopia, basic indicators show that there is an adequate demand from the public to buy shares. There are plenty of potential investors in the country. According to the Addis Ababa income tax data there are, in 2008, 430,000 people with an income level exceeding 50,000 Birr per annum and currently there are about 50,000 shareholders in the country. These figures suggest that there is much potential in the Ethiopian equity market. The low interest yield of bank deposits comes in also in support for equity financing initiating the willingness of people to buy shares.
Depending on how much investment you are looking for at the start up or expansion phase; you must begin planning ahead for your future equity financing. Capture the existing potential demand and exploit the current economic status of Ethiopia which is suitable for equity financing.