You’re likely going to need a business loan in Kenya to start or grow your business, unless you’re completely self-funded or backed by investors. A business loan is a commercial financing given to qualified businesses by traditional banks, online lenders and credit unions. Business loans can fund a business’ operating costs and growing costs that may include everything from working capital and equipment purchases to larger purchases like real estate.
How do business loans work?
Business loans are given to business owners either as a lump-sum payment or credit line. In order to get this funding, your business agrees to repay the money it borrows over time, plus interest and fees. You may be required to pay daily, weekly or monthly depending on the type of business loan you get.
Business loans can either be secured or unsecured. Secured loans require collateral, which is something of value that the lender can repossess in case you fail to pay. Unsecured loans on the other hand do not require collateral. Instead, the borrower signs a personal guarantee agreeing to accept liability if the business doesn’t repay its debt as promised.
Acquiring a business loan in Kenya is easy. The loans are not only accessible but also affordable when you know what you want, your capacity, and the options available to you. If you have been thinking of starting a business or boosting the existing one but need more funds, think no more.
Kenya has various modes and channels to source funds for your business. The rule of thumb, however, is that you need to look for one with attractive repayment terms and low interest. Go for those you can wisely utilize and offset quickly and have your business running.
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Demonstrate How You Intend to Use the Business Loan
First, understand why you need a loan for your business in Kenya and how to use the funds. Your lender will require you to demonstrate how you will use the money and how it will benefit your business if granted. Some of the reasons they will need you to highlight in detail include the following.
1. To expand your business
A business loan in Kenya, if utilized well, will help you finance the expansion of your business without draining finance the growth of your business without draining your working capital. Your capital is what your business relies on; hence, you do not have to drain it because it means you will have more problems raising it in case things do not pan out as you had hoped.
2. To build your business credit score
Whenever you intend to get a business loan in Kenya, you must use the funds wisely to help you build your business credit history. A good credit history will show that your lender grants you even more money once you offset your business loan. Therefore, demonstrate responsible usage of the funds so that you do not run into debt and can access even more money next time, which will help you build your business more.
3. To better manage cash flow
Customers are different. Some will take two months, and some three or even four months to pay you, especially if you are in a seasonal industry with predictable slumps. This business loan will allow you to comfortably run your business and meet your working capital needs without a hitch.
4. Buying assets
Most people in business will opt for loans to acquire assets to add long-term value to their business or help increase revenues.
Choose the right Type of Loan You Need
Various aspects come into play when looking for the best business loans in Kenya. The first thing to consider is whether you need to acquire from a friend, family, or a financial institution. When obtaining it from a financial institution, some institutions must have more stringent terms than others. When you lack a good credit score, it can hamper your efforts, much less finding it hard to find a banking institution as they require some collateral or guarantee before they can offer you a business loan.
The next step is finding the best loan for your lifestyle, income, and business needs. For instance, if you are searching for an investment plan, it pays to factor in your monthly income and how much money you receive every month. It would help to consider how much money you can acquire and the interest rate that suits your current business situation.
From there, you can start comparing different lenders in the market, including digital lenders such as mobile apps, banking institutions, and microfinance. A myriad of institutions offers business loans in Kenya.
Digital Lenders in Kenya
- Hustler Fund
Hustler Fund is a government-sponsored loan launched on November 30, 2022, to ease credit access. Borrowers could access funds from as low as 500/= to as high as 50,000/=. As of February 20, just three months after the launch of Hustler Funds, the loan had hit 19 billion shillings, according to Cooperatives and Micro and Small Enterprises Cabinet Secretary Simon Chelugui, who disclosed this. At the time, the cabinet secretary added that 10.605 billion had already been paid.
Everyone is eligible for this loan; based on your credit score, you can access more. Refrain from underrating the 500/= that most Kenyans can access because it can go a long way in helping your business. The state launched the second phase of Hustler Fund on March 2023, increasing the loan limit to 2.5 million shillings rivaling financial institutions that have long thought of small traders as risky borrowers. In the second phase of this loan, savings, and credit cooperative societies can also access the loan. The government of Kenya, through Hustler Fund, addresses the unemployment challenges witnessed in the country, especially by low-income earners. You, too, can take advantage and access the funds to boost your business. To access the loan, dial *254# on your mobile phone and follow the prompts.
- Vooma App
Vooma App is Kenya Commercial Bank’s mobile wallet that enables customers to pay for goods and services, save money on their phones and borrow loans. Its services can be accessed across all networks in Kenya. You could use the platform to request a loan to boost your business. Joining Vooma is easy, you only need to your original Kenyan ID or passport and a registered mobile phone line. To register, dial *844# and follow the prompts, Android and iOS users can download the app on Google Apps Store or iOS Store and register. Note however that for you to register with Vooma, you must have an active KCB account that is signed up on KCB mobile banking. The account must be active for at least six months and has made at least four deposits over that period.
SACCOs are also another place where you can get funds to run your business in Kenya. SACCOs in Kenya strive to bring together people of the same interest, both social and financial backgrounds. Unfortunately, in Kenya, you have to do due diligence before joining SACCO to invest your money and to get a loan. This is because of the sorry stories that investments have had to tell about SACCOs they entered, which later swindled their savings and escaped into thin air.
Nonetheless, when you find a reliable SACCO, you will be able to access a wide array of savings and investment opportunities. The best ones in Kenya have emerged as the dominant micro-finance societies that spearhead investment and protection in the country. Let’s take a look at a few reliable SACCOs you can join, invest in, grow your earnings, and secure a business loan in Kenya.
Stima Sacco stands out as the best sacco dividends in Kenya. The Sacco, which was incepted in 1974, was meant to assist East African Power and Lighting Company. Still, today, it has opened its gates to Kenyans from every sector, be it groups, corporations, and business persons. The SACCO is today one of the leading financial partners with a vast asset base, dynamic products, massive membership, and impressive dividends.
Members can save with the financial institution, access reasonably priced loans, and get a good return on investment. It introduced FOSA services in 2003, which enables its members to bank with the SACCO. Its head office is in Stima Sacco Plaza, Mushebi Road, Parklands. You can call them at 0703024000 or email them at email@example.com and enquire about how to be a member and access a business loan.
Based in Westlands Safaricom Care Center (SCC) First Floor, Safaricom Sacco was established in 2001 to allow its members access to loans to improve and develop their social and economic status. Safaricom Sacco started with a paltry 222 members, which has gradually grown over the years to more than 12,000 members. Membership to the Sacco is pooled from Safaricom LTD and other tech-related organizations.
This Sacco’s main objective is to teach its members a saving culture and give them access to loan products to help them in their endeavors. Therefore you can join them, save with them and have access to a loan to boost your business. Contact them at +254 0111 222 226 or email: firstname.lastname@example.org for more details.
This Sacco was initially registered in 1972, and its members have been growing gradually over the years. Today, over 10,000 members pooled from the judiciary, AG chambers, government ministries, employees from the private sector, and anyone above 18 years old and with an income can join. The Sacco is touted as one of the best managed, with its head office in Matumbato Close, Upperhill Nairobi, Kenya.
It is also licensed to take deposits. It seeks to empower its members by providing affordable credit services and mobilizing them to save. As a member of Sheria sacco, you have access to various loan products, including salary advance, development, school fees, and emergency loan. You can enquire through their phone contact and email, +254 20 780 1500, email@example.com respectively.
Kenya National Police DT Sacco
Just like Sheria sacco, the Kenya National Police DT Sacco was also started in 1972 with a membership of only 690. Its membership has, over the years, grown significantly to more than 63,009. Members can access affordable financial products and services. Sacco offers its members a wide array of credit products, including super loans, premier loans, refinancing loans, mega loans, school fees loans, emergency loans, business loans, and much more.
Members can also open a savings account, grow their savings, and earn an interest rate of 4% per annum. The Kenya National Police DT Sacco is in Ngara Road, Off Muranga Road. For more inquiries on how you can register, save and acquire a business loan, call 0709 825 000 or email them at firstname.lastname@example.org
Mwalimu sacco is the largest Sacco in Kenya, with headquarters in Mwalimu Towers, Hill Lane, Off Mara Road, Upper Hill Nairobi. Its membership comprises primary school teachers, secondary school teachers, lecturers, members of the TSC secretariat, and the spouses and children of the informally employed members.
The Sacco is steadfast in seeing that teachers meet their financial needs under one roof. Its objective is to mobilize savings and offer competitive financial services to its members. By doing this, Mwalimu sacco is certain that this will transform the lives of its members. Among other services and products, it offers BOSA loan products, business loans, and welfare loans, to name a few. Therefore you can call them at +254 709 898 000 to enquire about eligibility or email them at email@example.com.
The Sacco was started in 1970 by a handful of small-income earners. However, things are different today as it is now a multi-billion institution boasting over 80851 members. The Sacco has its head office at Harambee Coop Plaza, Haile Selassie Avenue. The Sacco is feted among the top saccos we have so far in the country.
Harambee sacco draws most of its members from the national and county governments, the police service, and parastatals. Sacco offers many services through its back office services activity (BOSA) and front office service (FOSA). You can email them to learn how to join them and secure a loan for your business through firstname.lastname@example.org. Also, call them at +254 709 943 000 and learn more about their services. The Sacco has a lot of savings accounts that suit the Kenyan market and a variety of loan products, e.g., Jisaidie loans, school fees loans, development loans, and emergency loan products.
When you talk of leading progressive saccos we have in Kenya, the top of your list must feature Unaitas Sacco. With its head office at Cardinal Otunga Plaza next to Holy Family Basilica, Cardinal Otunga road in Nairobi, the Sacco was established in 1993 as a cooperative society. Over the years that it has operated in Kenya, it has been able to garner over 320,000 members, who include small businesses and investment groups. This is why you are encouraged to join this Sacco because your business loan needs will favor you.
The main aim for starting this Sacco was and still is to make financial power accessible to members of society. It provides innovative financial solutions, including a wide array of loan products such as development loans that will better suit your business, asset financing, biashara loans for businesspeople, salary advances, and much more. If you are interested in joining the Sacco and growing your investment, you can visit them or call +254721244139 or email email@example.com.
The Kenya Bankers’ Sacco
The Kenya Bankers’ Sacco was started in 1975 and has its head office at Nairobi, 3rd Ngong Avenue, Off Ngong Road. It was established to serve employees in the banking sector, meaning that most members are drawn from banks, microfinance institutions, and building societies. Chamas, spouses, children above 18 years, and anyone from other institutions are welcome to join the Sacco.
The main agenda that Sacco pushes is to mobilize savings from its members and lend them to their members at an affordable rate. As a member of the Kenya Bankers’ Sacco, you enjoy many perks, including investment opportunities, low–interest rates on loans, building a cash reserve, and high returns on deposits. As a business person looking for an affordable loan for your business in Kenya, you might want to try this Sacco. For any questions about how you can join and access loans, you can send an email to firstname.lastname@example.org or call for inquiries at +254205146500.
- United Nations Sacco Society
From the name itself, you can already hint that this is among the best-managed saccos we have in the country. The Sacco has its head office in the United Nations Complex, UN Avenue, Gigiri, Nairobi. It has been operational for over 40 years and was among the first Sacco to be registered by SASRA to take deposits after meeting all the required conditions.
Most of its members are drawn from, among others, the United Nations agencies, diplomatic missions, and international organizations. They boast a wide range of financial products and services and a wide range of loans, up to 15 of which its members can access when they qualify. The Sacco has also subscribed to the Cooperative Bank Sacco-link visa debit card so that members can assess services wherever they are in the world. The sacco contacts if you want to get in touch are +254 20 512 2700/+254 20 762 2700, or you could also drop them an email via email@example.com to find out more.
Suppose you want to secure a business loan in Kenya; besides going to a bank or saccos, you can get one from a microfinance institution. In that case, you will realize that microfinance institutions are way easier and more flexible in their dealings. The only setback is that their interest rates might put you off as they are higher than banks charge. Some reputable microfinance companies in Kenya where you can secure a business loan include SMEP Microfinance Bank, Kenya, Microfinance, Rafiki Microfinance, Musoni, Kenya Law, and more.
Commercial banks are large financial institutions that offer cash deposit and withdrawal services. They offer tailored loan products to various groups, including business people and the general public. Due to the size of commercial banks, business people can access multiple types of business loans even though loan approval requirements could be a lot more stringent compared to other lenders. Cooperative bank, for instance, has a lot of business loan products. One is MSME Term Loan, meant for extending one’s business. Equity Bank Kenya, NCBA, ABSA, and KCB are examples of big commercial banks with a myriad of loan products for their customers on business.
There are many business loan types offered in the market. Some major types are:
1. Bank Loan
When you secure a loan from a bank, the agreements are that you repay it in fixed monthly payments. Bank loans can either be short termed or long-term loans. Short-term loans generally take 6 to 24 months to repay, while long-term ones take three years and above. Banks offer secured loans. Secured loans have collateral and longer interest rates. On the other hand, unsecured loans have high-interest rates because they are insecure anyway. Several banks in Kenya can offer you a business loan: Absa, Equity Bank, KCB, and Cooperative bank, to name a few.
2. Business Overdraft
With a business overdraft arrangement, your business can withdraw more money than it actually has in its account. Let’s say, for instance, you have in your business account 500,000/= and need to make a payment of 700,000/=; the overdraft loan will ensure you make the payment even without the full amount. The lender will then wait until you deposit the money in the business account, where they will recoup their money plus interest. An overdraft facility lends you extra funds to manage daily operations working capital, and cash flow needs.
3. Microfinance Loan
Microfinance in Kenya has steadily risen since its inception in the mid-1990s. As of 2010, there were only a handful of microfinance institutions. Though few, they provided up to US$15 billion to approximately 1.5 million active borrowers. Equity Bank has the largest share of business loans in Kenya, which, as of 2010, represented a market share of 73.50%. Kenya Women Microfinance Bank follows with 12.06%, Faulu Bank, 3.56% with a gross loan portfolio of 39,643,494/=, K-Rep Bank, 6.39%, and a gross loan portfolio of 74,182,292/= with more than 82,000n active customers. Jamii Bora has a market share of 0.86% and a gross loan portfolio of 9,568,460/=. All these microfinance institutions offer a wide range of business loans, e.g., education loans, specific agriculture loans, emergency loans, group loans, women’s loans, and much more.
4. Business cash advance
This credit facility loans money to businesses against their future assets. If you need a loan for your business in Kenya, you can access business cash advances from firms such as KopoKopo and Safaricom’s Pochi La Biashara, among others. The lender will give you a lump sum and require a portion of your daily business sales until they recoup their funds plus interest.
5. Digital Loans
Mobile money has, over the years, transformed how lending is done in Kenya. More and more people opt for such lending avenues leaving other financial institutions to strategize on enhancing their products and services. M-Pesa was the pioneer mobile transfer channel in Kenya. Then came instant loan companies that could be remitted remotely via M-Pesa. Most Kenyans are now addicted to these digital instant loan lenders that do not require much information from the borrower.
Likewise, these platforms require little or no security to access loans. Banks and other institutions have also resorted to developing such digital loan applications to compete with the other digital loan apps that almost phased out banks from the business. Such Apps include:
- MCo-op Cash app – Cooperative Bank of Kenya
- Timiza app – Absa Bank Kenya Plc
- KCB app – KCB Bank Kenya Limited
- Eazzy app – Equity Bank Kenya Limited
Besides these loan apps, there are many most utilized and reliable mobile loan apps in Kenya with easy-to-use user interfaces. These include Tala, Zenka, Branch, Mshwari, Fuliza, NCBA Loop, PesaPap, HFwhizz, Hustla fund, Okash, Utunzi, Zash, Saida, Haraka, Apesa, KashPlus, among many others.
6. Sacco Loan
Sacco, in full, stands for Savings and Credit Cooperatives Society, which are credit unions that pool money and give their members access to money in the form of loans. Many business owners in Kenya prefer applying for business loans from Saccos instead of other loaning institutions. This is perhaps because they usually charge low-interest rates and have low eligibility requirements. The money you can get as a loan from saccos depends on your savings. Most saccos from three times to four times your savings amount.
7. Asset Finance Loan
You can purposely go for an equipment loan if your business needs to purchase machinery or equipment. Equipment loan uses the equipment itself as the loan security. The amounts are paid in fixed monthly installments. Among the places, you can access equipment loans include specialized equipment loan companies, directly from the equipment manufacturer, and also some banks.
8. Chama Loan
This is another avenue you can consider when looking for a business loan in Kenya. Chama loans are designed to enable self-help groups that are registered, welfare and investment groups to access loans for wealth creation. While each institution that provides chama loans has its conditions, the most common conditions that your chama has to fulfill include the following:
- Being in a registered group
- The group must have a minimum of 10 members
- You must provide minutes that authorize the application for a loan
- At least 2/3 of all group members must sign the minutes
- The group members must have saved consistently for at least three months
9. Logbook Loans
Logbook loans are secured by your vehicle as collateral. This means that your lender owns your vehicle until the day you will pay back the loan. This does not mean, however, that you cannot use your car. You can use it but can only sell the car once you offset the loan. While accessing a loan for your business this way is possible, remember that these loans are usually expensive and very risky. Hence, just like the Shylock loans, you must avoid these at all costs.
10. Shylock Loan
If you have read William Shakespeare’s The Merchant of Venice, you must have come across a fictional character named Shylock. The term Shylock is also used to refer to a person who lends money at an excessive interest rate. In Kenya, we refer to a loan shark as a Shylock. For the longest time, Shylocks in Kenya may enforce repayment by issuing threats of violence or by blackmail. It’s almost a bad deal when you have to approach them for a loan. They already know that you need the money badly and will take advantage of your situation; hence they are sometimes considered illegal.
They will lend you the money but with strict requirements that you pay it back in a month or so and at most the agreed time. Not honoring your promise would result in threats of violence, blackmail, or broken bones. Some contracts may require you to pay something ridiculous, even 10% of the loan amount daily. While it is still one of the options for accessing a business loan in Kenya, we advise that you go slow on it and, if possible, find an alternative option than to lend a business loan from a shylock.
11. LPO Financing
LPO financing lets your business benefit from the much-needed working capital based on your business standing and the company you are supplying your goods or services. The loan ensures the continuity of your business operations because the immediate working capital needs are met. The financing is meant to support the contractor in fully implementing the contract. It covers re-implementation and also post –implementation of the agreement. When the customer pays, you get the remaining percentage minus the fees and interests imposed by the financing company.
12. Loans Secured by Shares
This is also referred to as a certified pledge loan or passbook loan. It can be a business or personal loan you secure using the balancer in your savings account as your collateral. There is a guaranteed low-interest rate compared to other types of loans because it is secured. It could be the best option if you do not have a very good credit score yet want to build one. They are easy to qualify for than other types of loans. In Kenya, you can draw the value of your business investment in shares and finance your working capital. You can get a loan secured by shares in Kenya, up to 50% of the value of your shares.
Check Your Loan Eligibility
Knowing where you can access business loans in Kenya, it is now the time to weigh your options. The first thing is understanding the criteria each lender uses to evaluate your loan applications. Some lenders have stringent measures, while others are friendly and flexible.
- Credit score & History: Most banks will request to see your credit score history before lending you money for your business. Most want a minimum score of about 670. Thankfully, some alternative members may request a lower score than this.
- Collateral: Security against the loan depends on the loan amount you request and the lender. Most lenders, however, demand collateral before giving you a business loan in Kenya. Collateral is an asset that stands as security if you fail to repay your loan—this way, the lender can sell it and recoup their funds.
- Time in business: Lending to established businesses feels more secure than lending to startups. Therefore most lenders will tie eligibility for a business loan to when you have been in business. Most usually stipulate their minimum business age requirement of 3 to 36 months. Also, the time in business goes hand in hand with the loan amount you’ll receive.
- Annual revenue: Lenders also want to be sure that your business will repay the loan amount before they can lend you the funds. So, therefore, they will need to see numerous financial metrics, including your business profits, revenue, and cash flow. If your business demonstrates to be healthy financially, the more easily will you access the loan and even higher amounts
- Debt-to-asset ratio: Business loans that have not yet been offset could affect your chances of accessing new loans. So before they can accept your request for a business loan, the lender will look at your debt-to-income ratio. This is the ratio of your monthly debt repayments against your monthly income. If you have a high debt-to-income ratio, you are riskier; hence you have a lower chance of qualifying for a business loan in Kenya. If at all, then you will be eligible for a lower amount.
- History with the lender: It is normal for some lenders to give loans only to businesses that have maintained active accounts with them for a long time. The length of time, however, varies from one lender to another. Some lenders will also look at this aspect to determine the amount of loan your business qualifies for.
- Viability of the business: In business, profitability today does not guarantee profitability tomorrow. Hence before a lender gives you a business loan will want you to demonstrate that your business will continue generating income even after they lend you the funds. Here, you will have to prove your financial projections to demonstrate the viability of your business in the future.
- Business Industry: What industry are you in, as this could affect your eligibility or the amount of loan you will get?
- Business registration status: Before qualifying for a business loan in Kenya, most lenders request proof that the business is legally registered. You, therefore, must produce a certificate of business registration or a certificate of incorporation. You will also expect to have licenses and business permits to access a business loan.
- Business plan: Most lenders today request to view your business plan before they can avail funds to you. Startups requiring business capital must have an elaborate business plan. Established ones also need to have one. Here is where lenders tore the line.
Gather Your Loan Application Materials
Once you understand your lending options, get the needed documents. A lender will likely ask for several documents to prove assurance that you will be able to pay back the business loan once they approve you. Most lenders will ask for the following:
- Government Identification card
- Government identification
- Business license and permits
- Personal Background – Either as a separate document or part of the loan application. They will ask you to provide this information, including names used, previous addresses, educational background and criminal record, and more.
- Business plan – All loan programs in Kenya need a sound business plan to be submitted along with your loan application. Ensure your business plan has a complete set of projected financial statements, including loss and profit, balance sheet, and cash flow.
- Personal Credit Report – Your loan lender will obtain your credit report as part of the loan application process. Nonetheless, getting yours from three major consumer credit rating agencies is advisable before submitting your application to the lender. Any blemishes and inaccuracies on your credit report are detrimental to your loan application. Therefore get it prior to clear the inaccuracies before submitting your application.
- Business credit report – This is intended for those already in business. But you need to keep it as you grow your business, even though you are just starting up
- Income Tax Returns – You must submit personal and business income tax returns for the past three years.
- Financial statements – Your lender will also require you to submit a signed personal financial statement along with a projected financial statement. This could be either as part of or separate from your business plan. Always have these prepared and ready so that you can produce them if they are needed individually.
- Bank statements – Most lenders will request a one-year of personal and business bank statements to be submitted together with your loan application.
Submit Your Business Loan Application
When applying for a business loan in Kenya, you must make yourself available to study and compare lenders, visit them in person, or tour their website and find out eligibility and all the requirements. The above documents are what most lenders in Kenya require of you, therefore, fill them out and get them ready. Some lenders allow for applying online, while others prefer offline applications. Attach the necessary documents and send them online or submit them in person and wait for approval, loan disbursement, or any other communication from the financial institution.
As seen above, business startup loans have a quick loan application process. They are easier to qualify for and easier to meet their requirements. Before you pick one, ensure the lender’s transparency and honesty in revealing hidden or extra charges.
Also, do not just take a business loan in Kenya. Only take one when you are ready to expand your physical location, you want to build credit for your future, you want to purchase equipment or inventory, or you want to increase your operating capital.
Before settling at one lender, often factor in their interest rates, your financial situation, the loan type, and your credit score. Finally, failure to access a bank or SACCO business loan in Kenya should not be the end of the road for your business.
There are many other ways to get a business loan in Kenya if only you research well. You can turn to various online lending options in Kenya today and give your business the much-needed boost.