LPO Financing in Kenya means Local Purchase Order. It allows businesses to carry out contractual work as well as deliver on goods and services if they have obtained purchase orders or a letter of award.
Vendors and contractors in reputable organizations can obtain capital through LPO Financing. With ut, they can execute work orders and local purchase orders from these respective companies.
One of the best advantages of LPO Financing is that you do not need any form of security in the way of physical assets that other loans require.
Where to access LPO Financing in Kenya
1. Private investors
LPO financing isn’t restricted to banks, and this means that you can source for funding from even shylocks or sharks.
The downside of this kind of financing is that you will be charged a costly interest rate that they decide on.
Also, read about personal loans in Kenya.
Before committing, do your math, make sure your profit calculation is done right and within the LPO payment period (say 90 days), basically what I’m asking you to do is to know what amount you will remain with.
Remember that the whole point of this LPO is for you to make a profit out of business.
2. Invoice Factoring
Invoice financing is a fantastic way to generate capital for your business, and you can either pay current bills and debt or grow your business.
Many companies have not been in business long enough; hence tough for banks to consider them for loans, invoice factoring then comes in to get a step ahead in business.
Most companies do not have the cash at hand to pay bills and fund future projects, for these kinds of businesses, LPO financing, and invoice factoring is a solid idea.
3. Other institutions/ funds
Institutions such as The Youth Enterprise Development Fund (YEDF) are mandated to support financial and business development services to youth-owned enterprises
This particular loan is available to youth who have been awarded tenders by government agencies.
These agencies include ministries, parastatals, county governments and constitutional commissions under the AGPO program, and from other reputable procuring entities not owned by the government (those listed at the NSE and credible NGOs).
For the youth, this fund comes quite in handy, and these are the requirements you need to access this LPO Financing.
- To obtain this loan, you can either be an individual, be in a partnership, be a registered group, or a company run by youth.
- The loan limit is up to Ksh 5 million.
- The fund will finance 70% of the LPO amount at an interest of 1.5% after 90 days.
- 6.5% commission will be charged on the amount borrowed.
- To secure the loan, you will need a letter of undertaking, a bank guarantees, and also some general security.
4. Microfinance solutions
Microfinance banks are also another option while sourcing for LPO financing.
As a business owner, you may need to operate as a sole proprietor.
This is the case because a sole proprietor is the sole and final decision maker in the business.
As a sole proprietor, you are directly responsible and accountable for the finance granted to the business.
ALSO READ: Top 10 Microfinance Institutions in Kenya
5. Banks offering LPO Financing in Kenya
In recent days, banks have been on the rise to finance LPOs.
Most banks finance LPOs from as little as Ksh 10,000 to as high as Ksh 5 million.
Most banks also offer the LPO maximum period of 90 days, depending on the terms and conditions.
Banks may need for you to be an account holder for at least six months and have a good credit history.
- Valid LPO from the government ministry or Parastatal, a reputable (blue chip) company, listed NGOs or KCB List of Corporate companies
- Pro-forma invoice or quotation of items of purchase from the supplier
- Bank statements for the last six months (for non-customers)
- Copy of proposed collateral for borrowings above Kshs. 1,000,000
- Valid business registration and permit documents
- Valuation report where applicable
- Audited accounts for amounts above 5.0 M
- List of past contracts completed – dates, amounts, etc
- Debtor/creditor duly aged analysis
NOTE: Once an LPO has been issued, you can cancel it as long as payment has not yet been made. You will, however, need to fill out a cancellation request form.