Access to appropriate financing is key to enabling small businesses to grow and expand. A lack of access to financing is often one of the biggest factors holding businesses back. In Iraq, funding options are limited and can sometimes seem unattainable. However, there is a way to increase the chances of obtaining funding for Iraqi startups.
Entrepreneurs can focus on implementing steps that will solidify their business. The same things that make a business ‘work’, will make it attractive to financiers.Raed Adnan, Investment Executive at GroFin Iraq
GroFin is an impact-driven, specialist SME financier operating in 15 countries in Africa and the Middle East. They have invested over $7.5 million in Iraqi SMEs. Raed gives the following advice to entrepreneurs to help improve their ability to obtain adequate funding within the Iraqi business context.
1. Create a legal entity
Ensure that your business is a registered, legal entity. If you want to access corporate lending in Iraq it is critical to hold a legally formalised entity in one of its different forms like limited liability, partnership, or private shareholding. A legal entity has its own merits in terms of the Company Law and before the judiciary system in Iraq and worldwide.
A legal entity will make a big difference in the signing of facility agreements and obtaining representation letters. For startups, it is also a good idea to reserve a commercial name, logo, and brand. These should also be registered as intangible assets into the new formalised legal entity.
2. Stay in good standing
It is important to ensure that your legal entity has checks and balances in place and remains in good standing with the relevant authorities. Make sure that all registration documents are up-to-date and renew all the necessary licenses from related government authorities.
It is also crucial to register your business with the tax and social security authorities and to keep abreast of payments to them. Obtain tax clearance, as this is always very important to financiers and financial institutions in Iraq. Unpaid taxes can trigger contingent liabilities if not settled, and take precedence over loan payments – financiers want to avoid this risk.
3. Make sure you have a succession plan
Most startups and more mature small businesses are run by solo entrepreneurs who delegate very little responsibility to directors or employees within the business. Lenders require a succession plan to be in place to ensure that the business will be able to continue operating even if the key individual who built it leaves or passes away.
In his book Good to Great, American author and researcher Jim Collins argues that great leaders are humble and strive to make a difference to their employees’ lives, rather than fulfilling the needs of their own ego and pride. They don’t always say “I did”, but rather “we did”. This kind of leader ensures that they provide leadership and structures that will continue on in the business even after they have stepped down.
4. Plan ahead
Bankers and financiers look at the cash flow a business expects to generate in the future to determine whether they will be able to repay a loan and service their debt burden. This means it is crucial for both existing businesses and startups to compile a budget and conduct financial planning that includes different scenarios and stress testing. This gives the ability to assess where the company is going and the steps of sustaining and growing its base.
Your budget should also allocate enough of your resources to marketing. Develop a good marketing and sales plan and revise it periodically. This shows the path your business plan will take to achieve higher growth in the sales of its product and services. It also provides financiers with a good understanding of the market segments and dynamics.
5. Flexibility and structure
A formal, financeable business has a company structure, chain of command and governance in place with adequate policies for all aspects of the businesses. These policies should be updated and followed at the workplace.
However, this structure does not mean you should not be open to change. Retain a flexible management structure and make use of technology and innovation. In this fast-paced world, companies and managers who are geared to change with the latest technological breakthroughs will prevail and sustain their existence.
6. Give back
Always work to keep all your stakeholders happy including employees, suppliers, customers, and the community you operate in. Ultimately, this will be reflected in the performance numbers and results of your business. Always remember to give back to your community. Not for the sake of accessing a loan, but for your own sake as a member of that community.
Starting a business is an exciting venture but it is also a costly process. It is often the case that Iraqi entrepreneurs will need to invest their own resources to get their business started before they can apply for funding. This is the case for the majority of entrepreneurs around the world and should not be a deterring factor. However, when starting a business, it is important to think long-term and to try and meet the basic legal requirements to be more attractive to investors when you are ready to grow.