How to get a bank loan in Kenya

 

How to get a bank loan in Kenya

Bank facilities are important for both employed and self-employed people, and small businesses as well as corporates. Development loans are healthy loans while consumer loans are just a trap. The most common and important loans include: asset finance loans, project loans, agriculture-based loans, business loans, Local Purchase Order (LPOs) financing and mortgage loans. School fees and personal loans (for consumptions) are also common but you do not really need them.

Before we look at the simple steps you should follow for you to secure a financing in Kenya, let’s take a look at the following highlights:

1.     Before you apply for a loan, first sit down and write a clear budget of what you want to execute. This will prevent cases of being under-financed or over-financed. If you are under-financed, it may either be difficult to get an additional financing or the entire process will be very costly. If you are over-financed, the cost of credit will end up being high while you did not economically spent the entire loan proceeds.

2.     It is not advisable to start the first business with a facility – the business’ performance may end up becoming dismal. To add salt to the wound, you have a facility to service. If the situation worsens, the bank may end up repossessing your property which will definitely makes your situation more miserable. However, you can always secure a facility to start a new business if you already have an existing income that is adequate to service the facility.

3.     Your priorities should be very clear. There are developments that should come first than others. For example, you may first think of erecting a rental apartment rather than taking up a 10-year mortgage loan to buy a home or build your own residential house. You may also prefer acquiring a commercial vehicle to buying a personal car. The list goes on, prioritize on incomes, the rest can follow.

4.     Do not test the depth of the river with both feet. For example, you should not apply for an LPO to supply items if it is your first deal. Sometimes, it is better to start small. This will help you know a number of things about tendering process, for example, pricing, time taken to receive payments and so forth.

You have often heard that you should befriend three people in your lifetime: God, family and a financial institution. There are many Kenyans who complain that they have been customers to various financial institutions but when it comes to financing, they are turned down. This has made many of them to hop from one bank/Sacco to another. But, what is the major cause(s) of this unfortunate situation. There could be many reasons but from my experience as a bank officer, the following highlighted reasons are the major causes:

Poor or inconsistent account patronage

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When you visit a bank officer for a financing, the first thing he/she does is to do a desktop appraisal. This entails checking your average monthly turn-over, that is, whether you are channeling your business, farm or rental proceeds through your account. This should be in tandem with your business operation or performance. You cannot be making an average daily sale of Kes 5,000 but the average total deposit in your account per month is Kes 20,000. This discrepancy tells a bank officer that you are not a serious investor and loan repayment may not be your priority so their funds may end up at risk. The bank officer is also required to perform an analysis on your account, if the figures are inconsistent, it may put the bank in a difficult situation as they are not able to tell the trend and the performance of your business.

Poor Credit Score

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Currently, there are three business information and credit management companies in Kenya which are regulated by the central bank of Kenya. They are: Metropol Credit Reference Bureau (CRB), Transunion CRB and Credit Info CRB. Once your bank officer is satisfied that you have the capacity to service the requested facility, he will proceed to generate your CRB report. The three possible listings are: positive, negative and null. Positive means there are cleared or running facilities in the report but they are up-to-date or are well serviced. On the other hand, a negative listing means that there are one or more loans that went into default and lastly, a null report means that there is no listing at all because there is a possibility that you have never been advanced any facility elsewhere. If the report is negative, you must first clear the arrears or the whole loan amount and follow with the listing institution for an update with the respective bureau.

After this, you may be required by the bank to explain why that facility went into default. Your explanations may be supported by documents, for example, the facility may have gone into default because you were retrenched or your business premises were demolished by a local council among many other reasons. However, for reasons not very convincing, your loan application process may end here. It is therefore imperative to service all your facilities on time or seek the bank’s guidance in case you are faced with a challenge otherwise you may fail to secure facilities in future from the same or different financial institutions.

Your contribution

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Nobody, not even a bank would wish to own 100% risk in any project. It is not advisable to request for a facility when your bank account is reading zero or when you don’t have an asset which you can quickly liquidate. Regardless of the purpose you have, you should have at least 25% in cash of the value of the project you wish to undertake. If you are set with this, you will be sending a signal to the bank that this is something you have researched well and that you had already planned to execute it. This will raise their confident levels in you.

Understand the project/business

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Guess work do not work here! This is a facility that must be paid with interest. You should be in a position to answer all the questions regarding the business or the project you wish to undertake. Some of these questions include: target customers, pricing and the competitors, the anticipated break-even period, your experience in the related businesses amongst others.

Documentations

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You should be able to avail all the requested documents. In fact, you should be armed with some of them before you approach a bank, for example, trading licenses, and business registration certificate if any. The process of obtaining some of the documents like the approved plans, NEMA and NCA certificates in case of construction may be costly but it is worth every penny, so do not lament.

Conclusion

Identify a financial institution and develop a good business relationship with. Ensure consistent deposits are made through this preferred bank’s account, always visit your officer and enquire about new products. Always attend the institution’s fairs and customers’ forums. Repay your facilities on time. They will always get your back and help you move your business to a notch higher.