Economic activity

13 Reasons Why Kenyan Entrepreneurs Are Denied Loans

A report by Wylde International indicated that many Kenyan entrepreneurs are not getting loans, with inconsistency in filing bank statements being one of the main factors.

In the 2022 report launched on Tuesday, May 25, Wylde international noted that only 45% of small and medium-sized enterprises (SMEs) that applied for credit received loans in the past three years.

The inconsistent ranking of bank statements has been attributed to the nature of businesses, with most SMEs being agriculture-based and therefore dependent on harvest seasons.

Traders display mangoes at the Riosiri market in Kisii County

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Lack of collateral when applying for loans also played a major role, with the report adding that many entrepreneurs were forced to ask for lower amounts.

“The study also showed that approximately 45% of the companies involved had their request for a financing facility turned down.

“This was mainly attributed to the great difficulties in meeting funding requirements such as security i.e. title deeds/assets and audited accounts as reported by respondents,” reads in part. in the report.

Moreover, banks and financial entities have also been criticized for using similar loan evaluation criteria when analyzing credit applications submitted by small and medium-sized enterprises (SMEs).

However, the negative Credit Reference Bureau (CRB) rating and poor repayment of past loans have also posed problems for entrepreneurs.

In terms of business operations, it was noted that entrepreneurs lacked the required business licenses and SMEs also failed to demonstrate good cash flow.

“Most of the companies engaged, 64.4%, reported that their turnover was less than Ksh 5 million, and around 32.7% declared a turnover of Ksh 5-100 million.

“This could imply that most companies surveyed were still in the start-up phase with limited working capital and asset base,” the report read in part.

Other factors include lack of accounting and proper business records, lack of bank accounts, ignorance, amount applied less than their minimum loan amount, low turnover due to the effects of the pandemic and a lack of experience.

Undated photo of the Central Bank of Kenya in Nairobi

An archive image of the Central Bank of Kenya in Nairobi.

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Despite the challenges, it was noted that many entrepreneurs depend on loans to grow their businesses, with the report indicating that 93% of entrepreneurs plan to apply for loans this year.

“Of the companies that are planning to obtain financing in the near future, most of them are looking for financing for their expansion, 39%, while 36% of them are looking for working capital for their business.

“Business expansion is the most favored goal of seeking funding, however, sufficient working capital is a key aspect of the financial health of any business; and not having enough working capital can have a serious negative impact on the future of your business,” the report read in part.