Getting a loan for a small business in Kenya or any other part of the world is rarely easy. This is partly because of the greater risk that banks have to take as small businesses are more prone to risk than large businesses.
If you are wondering how to get a small business loan from a big bank, the best possible way is to understand what banks are looking for, then you will be better equipped and prepared to navigate through the application process with favorable results
Examples of Banks That Finance Small Businesses in Kenya
- The Cooperative Bank of Kenya
- Equity Bank
- Kenya Commercial Bank
- Diamond Trust Bank
- NIC Bank
- Chase Bank
Here are a few tips on how you can improve your chances of getting a small business loan.
1. Be Ready with a great “elevator pitch” about your business
No one can know more about the great potential of your business than you, but if you cannot communicate this quickly to the person whom you are seeking the loan from, it will be difficult to convince them to lend.
You need to prepare a short ‘elevator pitch” on how your business will grow, what its competitive advantages are, and above all, why you need the loan and for what purpose you intend to use it.
2. Know the criteria by which the Bank will evaluate you
The bank will study the following metrics before they entertain your application for loan. So whether you are successful in securing a loan depends how you present and qualify regarding the following criteria
Your Annual Revenue
Banks want to know if your business is making money and the higher your revenue, the better the chances of getting a loan. After all banks want to be sure that you will be able to pay them back.
Your Average Bank Balance
You may make a lot of money, but you may not be good at managing it. Your bank balance average will show whether you keep cash on hand and whether you have a buffer to keep up for repayment of loan, even if there is a dip in sales.
What collateral can you offer
The bank always worries about how you will repay in case of business failure, and will prefer that you provide collateral to secure the loan. They will look at your business assets such as real estate, equipment and inventory first as possible collateral.
3. Keep your financial documents in order
To approve or consider your loan application, banks will also want to see at least two to three years records of the following financial statements and documents
- Your Business Plan
- Financial statement, Balance sheet, Income statements
- Tax Returns
- Bank Statements
4. Approach the Bank with a good personal Credit history
Since yours is small business, your personal credit history will also be taken into account and can be the most important factor the bank will look into. Make sure that your credit report is without inaccuracies.
Try to pay down debt and personal credit. Any red flags that are raised can spoil your chances of getting approval for a loan.
5. Be Realistic about the amount you need
When you decide a figure which you intend to ask as a loan, make it a realistic figure. Don’t ask for a too high a figure, expecting to negotiate it down. It is a big, professional financial institution that you are dealing with and the best thing would be to ask what you really need. Start small and set up a good repayment track record and you can go for bigger amounts later.
Related: Breakdown of capital needed to start various businesses
6. If Rejected don’t be dejected- Wait and try again
If your credit rating, financial documents and personal finances are in order and yet your application is turned down, there must be some flaw you have overlooked. Try to pinpoint the problem by scrutinizing your application and talking to an evaluator or accounts personnel. Rectify the problem area if you can and wait for a more opportune time and try again.
A Final Word
Have you ever tried to request for a bank loan to finance your SME? What was the experience? How hard is it acquire a small business loan in Kenya? Talk to us via the comment box.
