Startups, the world over, appear to share one thing in common; the hurdle of financing. This article takes a look at options in financing that startup businesses can have access to.
For a more comprehensive understanding of what a startup entails, as well as its constraints, we will analyze some financing trends in Ghana.
Since time immemorial, economists, financiers, venture capitalists and researchers have long had as a bone of contention, sources of funds for startups. Issues related to decisions on the capital structure have attracted a lot of attention, because these are primarily dominant in small size and young enterprises.
This article will explore the financing options that startup enterprises can have access to, in conjunction with their duration of access and pattern.
To ensure the smooth availability of funds these enterprises can access in crucial times like during an economic recession, we shall also examine possible alternatives.

The main group of small enterprises that are addressed in this article are “startups” and not the ones already in operation, since their financial options and preferences differ as startup enterprises apply for finance, it faces many constraints; these constraints will be addressed along with the relevant options.
The main concern for these startup enterprises is not only limited to the mode of acquisition of these sources of finance, but also how these sources are effectively implemented once they are made available, since the startup enterprises lack both the experience and expertise in dealing with the core business operations.
For Kofi, who is yet to inherit a soya plantation from his late uncle and intends on setting up a factory to produce processed foods, or James, a recent graduate from the School of Engineering at the Kwame Nkrumah University of Science and Technology (KNUST) in Ghana, who also intends to start an IT servicing shop, their prospects of succeeding, as compared to their counterparts somewhere in the Far East, say China, are really slim.

This article seeks to makes sense of the disparity in these two scenarios. Before that, lets quickly look at some types of startups, and some ways in which they can be financed.
Generally, there are two types of startups; one describing the stage at which the individual thinks, reasons and acts to convert his business ideas into commercial opportunities to create value.  This refers to the point even before the conception of the firm’s cycle.
The second type of startup describes the stage after the first stage aforementioned. There are several options available with regard to financing a startup during the different stages of the firm’s life cycle.
These are Seed Financing, Startup Financing, First Round Financing, Second Round and Mezzanine Finance.
Some sources of finance for startups also include owners capital, banks, trade credits, relationship lending, angel investors, venture capital and lending.
Returning to the main challenges, thus ascertaining why Kofi or James has fewer chances of success as compared to their peers in other continents; we shall be taking a sneak peek into how the Ghanaian economy plays a vital role in turning things around. In the category of third world countries, Ghana is one of the developing countries from the Sub-Saharan African region. 

The main emphasis here is to understand the primary source(s) of finance for the startup Ghanaian firms and how it creates a backlog of opportunities to its citizens.
Results from the observation of 25 unlisted firms between 1998 and 2002 showed that for the small size firms, 17.7% of the retained earnings are used as a further source of finance, whereas 67.8% is supported by the external debt and 2.4% by issuing new equities.
Internal finance is second most important source of finance after external debt.
Due to the heavy dependence of Ghanaian firms on external debt, the debt equity ratios are relatively higher for them and the growth is mostly financed by the short term debts in the form of bank loans.
Despite of the fact that the short-term debt is cheaper as compared to the long-term debt, the risk to the startups is very high.
A similar trend is observed where description about the cost of credit has been made by explaining the fact that startup firms in Ghana mainly consider banks as the first resort to obtain working capital, followed by the bank overdraft facility. Owner’s inner circle or the members of the startup team are considered just a source since they are mainly dependent on the banks for short term debt financing.
A different perception is drawn by the Ghanaian firms while applying for the finance from the banks; the firms do not consider that they would be able to acquire finance from any other source other than the banks. However, on the other hand, it has been observed that firms, while applying for the long term finance from the banks, usually don’t expect to accumulate a level of debt.

Eventually, researchers have placed emphasis on government-backed financing schemes to enable the government improve the quality of education.
This will help generate confidence in business dealings and improve understanding of various financing options present aside the banks and owner’s capital.
However, it noteworthy that some financing options like venture capitalists or angel investors are unavailable for the Ghanaian firms. The startups are either just a business opportunity yet to be availed or are businesses already operating but are in their initial phase of operation. Hence the factor of “age” is the main drawback in their access to finance.
The older and large the business is, the more it depends on the funds from banks, thereby restricting the access to finance for the new startup firms.
The same argument is further supported by the fact that there is the need for SMEs in Ghana in building stronger relationships with the banks and other sources in order to gain adequate collateral requirements and making their access to finance easy and secure.
Having perused this investigation, we find a number of systemic problems inhibiting the smooth takeoff of startups, key of which is the over reliance on the banks.

The question now remains; how do we create an enabling environment to put the likes of Kofi and James, who are struggling to kick off their businesses, at par with their counterparts in other parts of the world.

Below are a host of solutions that can be employed towards quelling the systemic problems created by the economy.
First, there is the need to create, develop and support the emergence of a Pan-African network of digital innovation physical infrastructure hubs, where entrepreneurs and startups can find safe havens in terms of technological infrastructure.
Ways to achieve this include:

1. Identifying, accessing and mapping existing African hubs that have available physical or technological infrastructure (with communications, programming technology, storage and processing technology present.) to support entrepreneurs and startups to go global.

2. Create and develop local hubs with available physical or technological infrastructure ( including communications, programming technology, storage and processing technology conditions) to support entrepreneurs and startups to go global.

3. Foster the development of the hubs with Public-Private Partnerships between government funding, and corporates.

4. Develop networking mechanisms between existing hubs and new hubs to share hard and soft technological capacity and enhance synergies between the hubs across the continent, including sharing development strategies and experiences.

5. Foster the creation and development of joint Incubators, acceleration programmes and co-working spaces with partners from both Africa and Europe.

6. We need to create, develop and support a network of agricultural innovation and startup hubs that can support African entrepreneurs, and African ecosystem builders. This can also be achieved through the following means:

a. Creating a directory of potential agriculture Innovation and entrepreneurship entities that have successfully developed programmess across borders and that are open and willing to support the development of African entrepreneurs and particularly African ecosystem builders (including local acceleration programs, incubators and other initiatives).

b.Developing networking mechanisms for agriculture Innovation and entrepreneurship entities to support African entrepreneurs and particularly African ecosystem builders (including local acceleration programs, incubators and other initiatives), such as supporting missions in Africa targeted towards boosting agricultural activities.

c. Enhancing the development of joint African agricultural innovation and entrepreneurship initiatives, acceleration programs (horizontal, vertical, corporate), incubators and other initiatives, with a blend of activities executed in Europe and across the various countries of the African continent.

In summary, the most expeditious path for any countries economic prosperity, diversification and job creation is to promote their startups especially during their budding stages.
Africa provides a promising atmosphere for startups today more than ever, especially with the recent investments by Jack Ma and several wealthy bodies in scouting for talents and supporting startups.