Things You Need to Know Before Applying for a Small Business Loan in Kenya

Are you running a small business and need more cash to expand or keep it afloat? Applying for a small business loan could be the perfect solution, especially if your business is still young and hasn’t started raking in profits. However, you shouldn’t rush to apply for a loan just because you qualify. Applying for a loan is a significant financial decision that could make or break your business—you have to consider some factors first.

Here are some things you should know before applying for a small business loan in Kenya:

Assess your financial needs

You should assess your financial needs before getting a business loan in Kenya. This includes knowing how much money you need and the repayment period. It can also be useful to have a general idea of the loan type that would be most appropriate for your business.

If you need working capital, then go for a line of credit rather than a traditional loan. Also, seek a term loan if you need the money to grow your business or to cater for unexpected expenses. An invoice financing company is a better option if all you want is support to pay some bills and get your business back on track.

Analyse your eligibility

You need to determine how much money you need and how much you qualify for before you apply for a loan. You will also need to find the right lender because being a new business owner with no credit history or collateral, you’d rather not apply for a bank loan, but seek an alternative source. 

If you own an established business and you have collateral, then you can apply for a bank loan. You will only need to calculate your debt-to-income ratio and compare it with the industry standards to get the bigger picture of how much you can borrow.

Know the interest rate

The interest rate is the extra money your lender will charge you when you apply for your business loan. It is usually calculated as a percentage of the loan amount (principal).

When you want to apply for a loan, the interest rate is one of the most important factors to consider. You should check the interest rate and ensure that it is not too high, such that it can affect your ability to repay the loan.

Loan repayment plan

A loan repayment plan is the agreed order in which you will make regular payments over a set period. Factors such as the size of the loan and your income will determine the amount, frequency, and duration of payments.

When your lender approves you for a business loan, they will work with you to set up an initial repayment schedule. This schedule will be determined by considering the loan amount, your monthly repayment ability, and the term length of the loan.