How to Get SME Loans in Kenya

In this article today, we will share with you tips on how to get SME Loans in Kenya in 2019 and beyond.

Small businesses (SMEs) need to borrow money to cover cash flow gaps, have additional working capital, or finance growth and expansion.

It’s essential for business owners to carefully prepare a loan application to increase their chances of approval. To help, we spoke with industry experts who shared their best small business loan application tips.

That being said, here are a few tips for getting an SME loan approved.

How to Get SME Loans in Kenya

Here is how to get an SME loan in Kenya in 2020:

1. Demonstrate how you intend to use the funds

Lenders will need to understand why you’re looking for funds and how you intend to use the money. Working capital is rarely a sufficient explanation for an underwriter.

For instance, instead of asking for Ksh. 1,000,000 in working capital, if an applicant says they need Ksh. 330,000 for inventory, Ksh. 370,000 for new hires, Ksh. 20,000 for enhancements to their location and Ksh. 10,000 for advertising, the credit provider, will be confident in your planning and ability to effectively use the funds.

You will also be required to express how the loan will benefit the business if granted, as well as how it fits in with your expansion plans.

You will also need to be able to express how the loan will help the business and how it fits in with your overall plans for growth.

Also Read: Understanding Asset Financing in Kenya

2. Choose the right type of loan for your needs

You need to be able to choose the right lender for you even though you are in a time crunch.

You need to thoroughly investigate alternative funders outside your bank, as they can typically get you the money quickly.

Be however warned that these quick-fix loans usually have a higher interest rate as opposed to your traditional lenders.

Small business loans are suitable for businesses with good credit that need long-term financing.

There are so many different loans out there; you should research what will work best for your business’ needs.

3. SME Loans in Kenya – Improve your credit score

Although different lenders have varied credit score requirements, having a high personal credit score will significantly help with your loan application.

Most lenders consider both your business and personal credit scores, so make sure you maintain a good rating for both. The three major credit bureaus should verify your credit score.

4. Maintain a manageable debt load

A manageable debt load is the amount of debt that is carried on your balance sheet.

You need to be able to demonstrate you can handle not only your current debt load but also the additional debt repayment your proposed financing will cause.

Be prepared to demonstrate the benefits of the additional debt for the expansion of your business.

For example, demonstrate to the lender how the added liquidity will be used, and forecast the additional revenue that will be derived as a result of the infusion of cash. The use of proceeds from the loan is a critical point of information for the financer.

5. Shop around for financing

Don’t trust that your bank or the vendor will offer the best terms. Compare rates, lease terms, fees and options and use only established financing providers.

Shop around for better deals.
Don’t trust that your bank or the vendor will offer the best terms. Compare rates, lease terms, fees and options and use only established financing providers.

6. Learn from your mistakes

According to the Nav survey, 45 percent of small business owners who are denied financing get turned down more than once and 23 percent don’t know why their applications were denied.

If your pitch falls through and you get denied the loan, ask the lender to enlighten you on what you could have done better and also give you additional suggestions moving forward.

7. Build relationships with loan officers

Good personal relationships with loan officers will go a long way in getting your SME Loan.

Sometimes the loan officers act like they are just the front-liners, and they have no power to help you with your loan application.

But once you build relationships with them using your people skills, you will find that these people have a lot of power and can mean the difference between rejection and acceptance.

Must Read: Business Loans for Startups

8. Update Your Records Regularly

Lenders need to see the latest copies of your records to assess your business when you’re applying for a business loan.

Because of this, you need to keep your business records up to date.

As soon as the lenders ask for your documents, you should be able to provide them as quickly as possible; this makes the loan process quicker and smoother.

9. Be prepared to demonstrate sufficient cash flow

If you’re an existing business, banks want to see that you have shown cash enough current to make your monthly loan payments.

They’ll do this analysis by looking at your past tax returns and existing debt.

Provide a financial plan that clearly illustrates you’ll be able to make your monthly loan payments.

10. Sustain a positive payment history

One of the most critical factors for any financier to weigh is a business’ payment history.

A financier needs to see that a business has a record of paying down debt, and on time.

The report may not mention your significant trade partners and other lenders who would provide a useful reference, and confirm you’re good payment history.

You can demonstrate this by providing these references, and be sure to include the contact information for the person you deal with at your bank, trade supplier, etc.