RAISING FUNDS FOR A SCHOOL PROJECT

by Engr Joseph Okechukwu 08060193044

Introduction

Our topic today is on how to raise funds for a school project. The project could be that of

1. Establishing a new school,
2. Expanding an existing school (e.g. adding a secondary school to an existing primary school),
3. Buying additional equipment like vehicles, Computers, Science equipments etc
4. or even moving to a new site.

Whatever project it is, funding is key.  But first, we must establish the scope and cost of the project before we can identify the different sources of financing.

For today’s topic we are going to use the case of establishing a new school. In that way we will come across all the elements of funding which will be applicable to the other scopes like expansion and so on.

Project Costing/Financing

What are the things required to start a new school? Of course a school must have a land/site and buildings, whether rented, leased or self-built.

1. a) Funding of Land/Buildings:

A school site could be financed by the following means:

1. Inheritance of land and/or buildings from parents,
2. Purchase of land from savings (Equity) and/or Borrowings,
3. Lease of existing land/buildings financed through leasing/mortgage companies,
4. Bank loans.

Whatever option one adopts it is important to ensure that the title (C of O) or lease on the site is long-term based, say 5 to 10 years at least.  This is because relocation of a school is not only expensive but may lead to loss of students, akin to starting afresh.

Also, because investment in school project has a long gestation period and low profit margin, it is necessary to avoid short term loans or high interest financing here, no matter how pressured.

1. a) Equipment Funding

The various equipment used in schools include tables and chairs, computers and peripherals, audio-visuals, sports equipment, school uniforms and vehicles, among others.

Apart from the chairs/tables, the other items are highly depreciable with very short lifespans, hence should be financed with equity or short-term credits of 3 to 12 months from banks. In fact, many of the banks have special packages for schools on these items.

1. c) Working Capital Funding

The greatest mistake novice investors make (including school proprietors), is not making adequate provision for working capital.  This is the money we require to pay salaries, pay electricity, water and sanitation bills, government taxes, as well as, buy chalk/markers/dusters and for the day-to-day running of the school.

For a new school these items must be estimated and provision made for at least one year of operations.  Equity and bank loans (overdraft) are generally used at the initial stage of takeoff.  However, once in operation, schools can pay for these items from school fees and levies collected.

As can be seen above, each component of the cost items has a suitable funding window and funding a long-term cost item like land/buildings with short-term loans (known as funding mismatch) could be disastrous! This is because the loans would mature before the school starts getting adequate income to offset them.

Different Funding Model and How they Work

Equity Funding:

This is the money contributed by the Proprietor. It can be from savings from another business or paid employment, or from sale of other assets like land and buildings.

The advantage of using equity funding include zero cost on funds since no interest is plaid. It is therefore the cheapest form of funding.

Another advantage of equity funding is that it is readily available and requires no protocol to access. It is therefore imperative that a would-be school proprietor should start saving early to raise the required equity funds.

Bank Loans:

Another form of funding is borrowing from Commercial, Mortgage or Community Banks. Each bank has it’s loan procedures. Below is the general process of access Loans;

1. It starts by sending a written application to the bank,
2. submitting the required documents,
3. getting a letter of offer and
4. finally executing a loan agreement.

Some of the documents the banks demand include;

1. certificate of incorporation or registration of the school name,
2. letter of approval from the state ministry of education,
3. government approval of business premises,
4. certificate of occupancy for the land or in its place a lease agreement between the school and the owner of the premises.
5. quotations for items to be purchased etc.

If the Proprietor is seeking a loan to build the premises, the banks would also demand the approved building plan from the Town Planning office or the Local Government. The banks may also ask for a collateral by way of mortgage on the school or another property to secure the loan.

Depending on the bank and the item to be financed, interest on bank loans for schools range from 18% to 25% per annum. And this is the disadvantage of using a bank loan: the cost of funding is high.

Banks also ask for evidence of prior equity contribution before parting with their money. The thinking is that if a Proprietor believes in the viability of the school project, he/she would put his/her own money first.  As noted early the equity contribution can be by cash, land,  existing building inherited or bought from the market.

Angel Investors

“These are people who want to give their money and time to foster new entrepreneurs,” says Mr. Navarro. “They’re not banks, they’re individuals, and that’s how companies should approach them.”

They typically operate alone, but may team up with other angel investors and form a fund

They are people who are looking for businesses to invest in and make profit without being there. Knowing this, angel investors can be a good source of capital for your business. Angel investors help small businesses take wing

First, you must have a solid plan put together on how your project will make profit and a great pitch ready. You have to capture their attention with enthusiasm and promising data points about yourschool’s current situation and future potential.

You may be wondering how you find angel investors. This might seem difficult, but many resources exist.

Educators should first ask colleagues for leads on local angels who may have an interest in their Education, as well as mentors at accelerators and incubators.

They should also try their LinkedIn connections. “The personal connection de-risks things in the eyes of an investor,” says Ms. Brown-Ganzert.

“They’re always asking, ‘Can I relate to this person?’”

Educators without personal or business connections to potential angels, these networks often form the first point of contact with the ecosystem.

Most angel groups vet applicants before they are invited to pitch formally. Business founders typically don’t need the robust documentation and thorough business cases that traditional lenders require, but angels will run through a due diligence process and will want to see as thorough an accounting as possible, and some proof of concept.

Get investment from venture capitalists

Venture capitalists (VCs) typically want to invest in slightly more mature companies than angel investors and sometimes want to have more of a say in managing the day-to-day operations.

Since VCs have a responsibility to achieve certain returns for the firm or fund, they want scalable and cash-flow positive companies with proven and scalable products and businesses.

If your school business satisfies these requirements, you could apply for an investment with a VC firm. It’s not the easiest thing to accomplish, but plenty of small businesses have done it successfully.

Your pitch is crucial to obtaining funding. Sequoia, one of the most successful VC firms on the planet, stresses, “you need to convey the main reasons why an investor should love your business in the first 5 minutes.” Sequoia partners state you can do this in three simple steps, which are:

• Explain what’s changed.Detail the innovation, industry shift, or problem that presents substantial opportunity for your company.
• Explain what you do.In one sentence, show how your company can capitalize on this opportunity.
• Explain the facts.Get to your company’s story and financials quickly. Lay out the opportunity with numbers. Discuss the team and their abilities and experience.

Some venture capitalist firms in Nigeria

• Cordros Capital Ltd. This firm is located in Lagos. …
• Venture Garden Group. …
• Unique Venture Capital. …
• Lighthouse Investment Ltd. …
• StreSERT Services Limited. …
• Kord Capital Limited. …
• TLcomCapital LLP. …
• Henshaw Capital Partners Ltd.

 Conclusion

In conclusion, raising funds for a school project will involve a combination of equity from savings, short and long-term loans from friends or banks, mortgages and leases, depending on the items to be funded. Long-term cost items should be funded with long-term funds and vice versa.  Most importantly, we must remember that working capital is the blood that sustains the running of the school, as any business that cannot pay salaries and bills is on the way to closure.  Thank you all.

Contributor 

Joseph Okechukwu
Director, Lily Hills College, Enugu