Is Credit The Greatest Barrier To The Growth of SMEs? What Are Banks and Investors Looking For?

By Soko Directory Team / September 28, 2018



business SME

Stats show that more than 400,000 Small Medium Enterprises (SMEs) are collapsing annually in Kenya. More than 60 percent of these SMEs that are closing down do so before their second birthday.

Kenya’s economy thrives mainly on the wheels of SME. The sector employs more than 86 percent of Kenyans and contributing more than 45 percent to the country’s Gross Domestic Product (GDP).

In a country where the unemployment rate is at 39.1 percent (no actual figure has been released), the closing down of SMEs should raise a red flag.

Most of the SMEs that have closed down have blamed the difficulties in accessing credit as the main reason behind their woes. Some have blamed commercial banks for tightening the rules and requirements for an SME to get a loan especially after the implementation of the Interest Capping Law.

But what are banks and investors looking for before deciding whether to give a loan to an SME or not? According to Inuka, these are the things investors and banks are likely to look at:

  1. Bank statement – an investor will want to look at your bank statements. A bank statement tells a lot about you and your business. It will indicate how the cash has been flowing in and out of the business. A consistent bank statement is the best bet in giving you a loan or an investor.
  2. Business plan – sadly, many entrepreneurs have no idea of how to come up with a convincing business plan. Someone said that if you do not have a plan to succeed, then you are simply planning to fail.
  3. Financial projections – this is important in determining what you want to form your prospective investors and banks. These include some of the avenues that you intend to get cash from and how you intend to use it.
  4. The details of the directors – no one gives money to people who want to conceal their identity.

Investors and lenders also look for the next of kin, business location, business license and the security of the money they intend to give.

According to the Kenya Bankers Association, the best way to attract funding is by having a clear business plan that shows your project is valuable and is going to succeed. No one wants to invest in a business that shows no signs of great return.

A successful business plan should be clear, practical, and realistic and have a long-term vision. It should also be composed of financial, human resource and market dynamics in a clearly stated manner.



About Soko Directory Team

Soko Directory is a Financial and Markets digital portal that tracks brands, listed firms on the NSE, SMEs and trend setters in the markets eco-system.Find us on Facebook: facebook.com/SokoDirectory and on Twitter: twitter.com/SokoDirectory

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