Want your SME Loan to be approved?

When starting a business in Kenya, without a doubt money is the most limiting factor. Obtaining finance is important for starting or growing your business’s major day to day expenses like Inventory and payroll. Getting capital or finance is one of the biggest hurdles facing Small Business Enterprises mostly due to banks’ lending structures and standards.

Whilst it is difficult, it is not impossible with the right preparation. Here is how to get a SME Loan and what you can do to increase your chances of approval.

1. Indicate why you need the Loan

The first question to get from lenders is why you need the money. Asking yourself how this loan will support your business and having ready detailed answer is one easy of way of getting your SME Loan approved.

Depending on your needs, your answer is likely to fall under the starting your business, managing everyday expenses or growing your business. Pinpoint in which ways the loan will help meet your business’s needs.

2. Decide on the type of business loan you need

Doing research will help you find out which is the best type of loan for you. This is majorly determined by your reasons for requesting an SME Loan. For startups, it is almost impossible to get a loan in your company’s first year of operation from banks since they require proof of how the business will support the repayment of the SME Loan.

While banks may immediately disqualify you from financing, with the rise of mobile lending apps in Kenya, getting a loan is not as difficult as it was before. There are websites like Go Fund me Kenya that support crowd funding (the digital version of Harambee), you can also get a Logbook Loan from companies like Milhan Access Capital, or get financing from Non-profit Lenders. However companies with more than one year of revenue have more financing available to them.

3. Find the best type of SME lender for you

Comparing the different lenders and their loan terms and conditions will help on choosing where and who to borrow from.  While the increasing number of lenders means more opportunities for SME to get financing in Kenya, it also means more places to choose from. Before setting on a lender, it is important to first compare their terms.

You should approach SME Financing in Kenya more like car shopping. Calculate the estimated payments to determine which business loan will work for you. Once you choose on the best lender for you, compare the total borrowing cost and pick the one with the lowest Annual Percentage Rate (APR). To be able to repay your loan comfortable each month, your total income should be at least 1.25 times your total expenses. There are loan calculators like Aren

4. Find out whether you meet the SME Loan qualifications

Before sending in your application, it is crucial to check if you have what is required for the type of loan you have decided on and the lender. This is where your credit score and annual revenue plays an important role. Your credit rating will determine which loan you will qualify for. You can check your CRB Listing at https://www.metropol.co.ke/ .

Lenders look at three things, How long have your business been in operation, How much money do you make and will you be able to make the payments. To qualify for most SME Loans from banks, you must have been in business for a minimum of two years while with online small business loans it is at least one year in operation.

5. Gather your required documents and Apply

After comparing your available options and weighing in on each’s benefits and limitations depending on your financial needs, it is now time to gather your documents that lenders will ask for ahead of time. You can apply for multiple SME Loans from different lenders to increase your chances of getting funding.

The basic requirements for SME Loans in Kenya include but are not limited to;

• Business and personal tax returns
• Business and personal bank statements
• Business financial statements
• Business legal documents (e.g., articles of incorporation, commercial lease, franchise agreement)Top of Form
• Bottom of Form

It necessary to look at your company’s financials especially the cash flow to determine how much you will be able to afford in terms of loan repayments every month.

Tips for getting your SME Loan approved

Use banks only when you are able to provide collateral, you have good credit and you don’t need cash urgently.

Use Microfinance and Saccos when you cannot get a traditional loan from a bank for different reasons or your business is still too small. However their interest rates are a bit her than banks.

Use online lenders when you lack collateral, you lack time in business and you need funding quickly. While online lenders compete with banks in terms of interest rates, the approval rates higher and faster unlike banks.