When you need a loan for your small, medium or large-sized business, it’s highly likely that you’re willing to take the first deal that comes your way, but don’t. Taking time to analyze your needs, plans and the potential lender will help you settle for the best loan in Kenya.
If you’re just getting started with loans, you might find it challenging to know the right questions to ask yourself, let alone the service providers. This article comprehensively covers everything you need to know before you apply for a loan in Kenya.
Understand why you need a loan for your business
There are unending reasons to borrow a loan in Kenya for your business. You might want to boost up your inventory, expand your physical location, do some renovations or marketing, help with recurring expenses or pay employees. You also might need money to serve as a cushion for a rainy day. Whatever your reason is for considering a loan, ask yourself:
Will the money help your business grow? For instance, if you borrow Sh. 100,000 for paying employees, your credit won’t generate more revenue, meaning you could still be in the same situation a few months down the line. If you put the money where it can grow, then you’ll realize more profits with time, and help minimize future borrowing needs.
Do you have an adequate cash flow to settle the loan? Most lenders will want to see a cash flow that’s at least triple your debt payment requirements. If they realize that you might have problems making payments if one of your clients pulls out, that’s likely to scare them away.
Related: four steps to make the most of your credit
Consider how much money your business needs
This might seem obvious, but you’ll be surprised by how many business people end up borrowing way more, or even less than they initially thought they needed. So, the second thing you should do is to take a pen and paper and write down all your needs, against the cost. This will help you come with an ideal figure, which is essential for two reasons:
Knowing how much you require will assist you in finding a provider who’s capable of financing your needs. Some will only give you a fraction of what you need, which will be too little, and won’t be worth taking. On the same breath, taking more than you require will mean bigger payments, which might strain you at the end of the day.
Having the ideal figure in mind will guide you in borrowing what you need; it removes the guesswork from the picture. This way, you won’t take less or more than what your business requires. Besides, with everything written down, you are aware of how you’re going to use the money, and it will serve as a guide for careful spending.
Analyze the cost of the loan
Once you’ve figured out how much money you need for your loan in Kenya, the third thing is to know how much it will cost you – or the interest. The market presents hundreds of options when it comes to money lending, but only a few will give you value for money. The hard part is finding the “few”.
Borrowing smart is the way to go; don’t go into it with your eyes wide shut, blinded by the excitement of what you’re getting. Debt isn’t bad, ignorance is. Here’s how you understand the real cost:
In addition to your potential interest rate, ask your lender about the Annual Percentage Rate (APR) for the loan. The APR includes all the extra charges – like the accounts, loan processing, and origination – and will give you a more accurate quote of what you’ll pay.
Ask if there are any prepayment penalties or extra costs. With this information, you’ll know whether or not your business can comfortably pay back the loan that you’re planning to take.
Find out about the payment terms
The good thing about loans is you can repay over a period. Before you commit to one, you should always be aware of its terms (how long the loan will last and its features). Top providers of quick loans in Kenya are flexible and allow repayments from 2 days up to 48 months. It’s best to know what you prefer before settling into a deal. You can:
Find out if the interest rate is floating or fixed. Floating interests fluctuate with the financial market, whereas the fixed one doesn’t change regardless of the market.
Consider if the term you’re interested in uses compound interest (CI). With CI, the interest amount is added to the principal borrowed amount periodically. Find out if you’ll incur any penalty for early repayment. If there isn’t, and the loan is using CI, then you can pay up the full amount sooner to save up.
Establish how soon you need the loan
If you want a quick business loan to boost your stock in a high sales period, or to cater for an emergency need, you’ll pay more for the convenience you’re getting. Fast cash is a bit more expensive than those that take longer to materialize. Prior to settling for a deal:
Analyze your business needs. Can the investment wait, and for how long? Is it an emergency? With the answer in mind, you’ll know what to settle for.
It’s also important to know who you’re working with. Some lenders will want to squeeze you dry because they know you need the money. You can opt for SACCOS which are highly regarded for helping in such situations.
Related: how to open a savings account that enables you to borrow against savings
Always ensure that you are well-versed with all that goes into the process before you resolve to take a loan in Kenya for your business. Big funds with minimum interest sound incredible, but if you can’t qualify, then it isn’t the right loan for you. A business loan is just about matching your needs with your options. Best of luck.