Find Out How to Get Capital to Start a Business in Kenya

Kenya is a beautiful country with a lot of potentials. However, when it comes to starting a business in Kenya, there are some barriers you will have to overcome if you want your company to succeed. The first thing you need to start a business in Kenya is capital. If you don’t have proper funding for your project, then it won’t get off the ground and this could be detrimental for both your finances and reputation as an entrepreneur. In this article, we will discuss how to get capital to start a business in Kenya. There are various ways you can easily raise funds to start that business you have been dreaming about. Let’s get started.

Here are the 7 best ways you can get capital to start a business in Kenya:

  • SACCO Dividents
  • Peer-to-peer lending institutions
  • Loans from SACCOs
  • Retained Profits
  • Friends and family members
  • Grants from government agencies
  • Business Plan Capital

1. SACCO Dividends

Savings and Credit Cooperative Organizations (SACCOs) are among the institutions with good dividend rates in Kenya. There are many best-performing SACCOs in Kenya you can opt to join. A SACCO mobilizes funds from its members and then uses these funds to provide loans at preferential interest rates to members.

When a SACCO gives loans to members from the mobilized funds, they pay it back with interest. What do you think happens to the interest amount? This is the money paid to SACCO members as dividends. Although SACCOs calculate dividends per month, they are paid out annually.

If you plan to start a business in a year’s time and your capital is not enough, the best option is to join a SACCO. Invest the money you have and keep topping up before the year ends. The money you save will earn interest and apart from that, you will be paid the annual dividend which you can then withdraw and invest in your business.

2. Peer-to-Peer Lending Institutions

Peer-to-peer lending is very popular among Kenyan entrepreneurs, especially those who need finance quickly. Most Kenyan entrepreneurs find it hard to get loans from banks and other financial institutions because they have a poor credit history or little capital. Moreover, the process of getting a loan from a bank is very long due to the many paperwork involved. However, this is not the case with peer-to-peer lending.

Peer-to-peer lending is a type of crowdlending in which people borrow money from individuals at an interest rate that’s lower than the one commercial banks offer. If you’re looking for a loan and you’ve exhausted all other options, peer-to-peer lending can be a good option for you. Peer-to-peer lending requires less documentation and processing time. You can borrow a small or large amount of money in no more than 48 hours after applying online.

The peer-to-peer lending option is a good source of funds if you want to start a business in Kenya due to low-interest rates and time efficiency. You can check out some of the best peer-to-peer lending platforms in Kenya.

Advantages of Peer-to-Peer Lending

  • Less documentation
  • Fast processing time
  • Lower interest rate compared to commercial banks.
  • Interest rates can be discussed between the lender and the borrower and re-adjusted

3. Loans from SACCOs

Loans from SACCOs could not miss on this guide on how to get capital to start a business in Kenya. Many Kenyans love saving in SACCOs as they will be eligible for loans among other benefits.

Joining a SACCO will provide an opportunity for you to start a business in Kenya as you will be eligible for a loan. If you are in a SACCO, you can get a loan of up to 3 times your savings. What does this mean to you? Let’s look at the following real-life example:

You have joined a SACCO and made cumulative savings of Ksh. 400,000. If you want a loan, the SACCO can give you three times your savings. In our cases, you qualify for a loan worth (400,000×3=1.2 million). Therefore, you can get a loan of up to Ksh. 1.2 million. This is a good sum to start a business here in Kenya.

Advantages of SACCO Loans

  • Easy processing
  • Low-interest rates
  • Guarantors are SACCO members
  • High loan amounts (3 times your savings)

4. Retained Profits

Retained profits refers to the money you as a business owner keep after paying all expenses and taxes. These earnings might be used to reinvest in the company, pay off debt, acquire other businesses, and so on.

Retained profit is a good source of capital if you already have a running business and ‘you want to start another business. Let’s say your current business has retained profits of Ksh. 50,000. Instead of re-investing this money in the same business, you can invest it in some of the untapped businesses in Kenya. In this way, you will be diversifying your earning portfolio as an entrepreneur. Here is a real-life example of how retained profits work:

  • You start a water vending project in May 2021 by investing in Ksh. 200,000
  • In August 2021, you realize a profit of Ksh. 50,000 after paying all the bills incurred as a result of the business.
  • Instead of re-investing the Ksh. 50,000 in the same water vending business, you can start a boiled egg and smokies business besides your water vending business.

5. Friends and Family Members

This is another good option on how to get capital to start a business in Kenya. If you have family members or friends who are willing to invest in your business, go for it. Friends and family loans could be a great source of funds if you can’t get capital from other sources. This is because the interest rates charged on friends-and-family loans are lower compared to commercial banks’ interest rates. You can use this money to start any type of business in Kenya. Here is a real-life example of how friends and family loans work:

  • You have approached your uncle who has offered to give you Ksh. 200,000 as capital for starting a poultry farm.
  • The interest rate charged on the loan by your uncle is 15% per year.
  • At the end of the year, you will have to pay him Ksh. 30,000 as interest. In total, you owe your uncle Ksh. 230,000 at the end of the agreed duration.

If you put in the hard work to market your poultry farm, you will be making more than Ksh. 30,000 in profits at the end of the year. Therefore, it will be easy to pay back your uncle and remain with your business.

What to Consider while Working with Family and Friends

  • Make sure both parties understand the terms of repayment.
  • Ensure you have a contract between yourself and your potential lender.
  • Have an agreement on how much interest rate will be charged per year and what happens in case there is a default or missed payment.

6. Grants from Government Agencies

There are many government grants in Kenya today. For instance, the agribusiness funding, industrial development fund, Uwezo Fund, Women Enterprise Fund among others. These funds are usually offered to people and businesses with special projects.

If your business qualifies for a grant, you won’t have to pay the money back unless specified in the contract. The downside is that they come with many conditions which may not be easy to meet. Moreover, it takes time before one gets this kind of capital to start a business in Kenya. You can check some of the funds from Funds for NGOs.

7. Business Plan Capital

This is the best source of money if you have a well-thought-out and documented project plan. The key here is crafting your business plan in such a way that it will attract investors who are willing to give out their money under certain terms and conditions. When writing this plan, make sure it shows how your business will grow within a short time and what will be the impact of this growth on society. It also helps to include an executive summary that highlights where you need capital for starting a business in Kenya as well as how much money is needed.

After completing the project plan, you can now approach potential investors. You should be able to get a good interest rate from them since your business idea is well thought out and has been presented in an attractive way. Some of the investors who fund such projects in Kenya include;

  • Safaricom
  • Equity Bank
  • Kenya Agricultural Research Institute (KARI)

Wrapping Up

There are many ways on how to get capital to start a business in Kenya. If you have done thorough research, the most appropriate source of money will present itself. As a start-up business, you should do your market search well. With time, you might be able to get enough capital from your business profits. However, the best source of money is having a well-written project plan that shows how your business will impact society positively and attract investors who are willing to invest in it under certain conditions.