Small and Medium-sized Enterprises (SMEs), is a term loosely referring to businesses within a certain threshold in assets and turnover. They are recognized by international organizations like the World Bank, the European Union, and the United Nations. They cut across all industries and are small or medium-sized. In Kenya, SMEs are categorized based on their turnover and number of employees. According to the MSE ACT 2012 there are three categories of MSEs: Micro Enterprises whose turnover is below Kshs.5M annually and will typically have only the founder as the employee. Small businesses are enterprises whose turnover is between Kshs. 5 – 20M and employees under 20 employees, while Medium Enterprises are companies that have a turnover beyond 20M and employ over 20 employees.The MSE ACT 2012 is under review to better define the sector and identify practical ways to grow small businesses in Kenya.
In Kenya, its estimated that there are atleast 9 million Small businesses. Only about 1.5 million of the total number is registered. This statistic points to the governments optimism to generate more revenue from the local economy. Optimism without action can only achieve so much. The governmenta needs to streamline the Small business sector and provide incentives that promote the growth of small businesses, that way the businesses will be able to sustain government revenue targets. There is unfathomable interest in small businesses. At the onset of the pandemic, the Kenyan government, private financiers, international partners and any organization that works with small businesses developed financing products for small businesses. A few small businesses were able to take advantage of the renewed interest to grow their businesses, but a majority of small businesses are either uninformed of the opportunities or not ready for finance.
An Enterprenuer should be armed with information on the various financiers and products in the market. Relevant information helps you leverage better for success. Get all the information on small business financing. it will help you appreciate the the intrigues of business finance and enable you align your business accordingly inorder to strengthen your case and improve eligibility for funding. Be on the look out for information
Prepare requisite documents that any lender will be interested in. Any financier needs a proper understanding of the enterpernuer and the business. . Documents fall in two categories:
These are documents that confirm your identity since you are borrowing on behalf of the business. They include Identification documents such as the National Identification Card, Drivers license, Utility bills, Personal Identification Number,and Passport. Its important to have those documents inorder and ready for presentation on request. r.
These are documents that confirm the existence of the said business and display its financial performance. Remember that lenders don’t want to lose their precious money so they take precautions. The documents are as follows;
- Business Profile
The business profile introduces your business to the financier.It consists of a detailed explanation of your business, its origins, registration status, location, products and services offered, staff members, previous and existing clients, projects undertaken and contact information. When presenting the profile to a potential financier consider including a page to justify the purpose of the business loan you are seeking for
- Bank statement
Bank Statements show business transactions from the bank over a specified period of time. Most financiers request for the most recent statements going back atleast 6 nonths. This is why enterprenuers should endeavor to undertake majority of businesstransactions through the business account. It goes a long way in showcasing the turnover of the business as well as clearly informing the business ability to repay the loan
These are legal documents associated with the business operations, like county licenses, tax documents, statutory deduction documents, regulators licenses, payroll, contracts with clients, contracts with suppliers etc. . Ensure all the requisite business documents are obtained and kept well as they will come in handy when sourcing for funding.
This entails any documentation which legally confirms the location of the business. Where the business has a lease agreement with the landlord , then the lease becomes the proof of address, if the premises are owned by the business then the title deed accompanied by land rate payment receipts becomes the proof of address, where the business neither had a lease or title deed then utility bills like water and electricity invoices become proof of address. Keep these documents well as you periodically receive them.
Collateral is necessary for secured loans. The value of the collateral will determine the highest amount that you can access from the lender. Most lenders seek for collateral such as vehicles, title deeds, and securities. Ensure that you have the right documents to prove of ownership
In recent years Kenyan banks have taken up assessing r creditworthiness for both enterprenuers and businesses before issuing credit. The assessment is aided by information provided by the Credit Reference Bureau(CRB).Incase the business or its owner is listed by the CRB you shall be required to clear the outstanding debt and get a clearance certificate before being issued with a new loan. A clean record with CRB is likely to increase your chances of getting finance at a competitive interest rate than the market rate. . The decision to take such credit/loan does not occur overnight. Prepare early for a future loan by servicing current loans promptly and in full.
Have a good insight into your financial operations. Not only does it enable you to run an efficient enterprise, it also allows you determine your financial health and that is good for the business. An Enterprenuer with financial knowledge earns respect and trust from partners and potential lenders . It is one of the factors that financiers will use to evaluate your case.
Seek membership subscription with relevant agencies/organizations that fund SMEs. A good example is a government agency Micro and Small Enterprise Fund ( MSEF). It was conceptualized to assist small businesses in need of funding. It acts as a government strategic business advisor on the SMEs funding. The funds are guaranteed by the government and assist small businesses without necessarily producing collateral.
This is the relationship-building in the social cycles which bring associates and peers together. Keep a good relationship with business partners and lenders. It might not have an immediate impact but over time creates a bonding, bridging, and linking which boosts trust.
your business needs financing to grow and expand. Its important to Identify which area and for what purpose that the business needs to be financed. In addition, prepare the business and its associated documents well in advance for funding when the time comes. It will improve eligibility and position it better.