Tips to make rural SMEs attractive to lenders

Despite the increasing rural to urban migration, about two thirds of Kenyans still reside in rural areas, where they depend on small and medium-sized enterprises (SMEs) for their sustenance. Indeed, in rural Kenya, like the rest of rural Africa, SMEs employ nearly 90 percent of the population, making them a central placement in local economies. Yet despite this critical role, many enterprises still struggle to get the financing they need to grow, with Wylde International reporting that just 40% of SMEs qualify for financing. It is in a bid to bridge this gap, that Faulu Bank has since 1991 been keen on lending to small businesses, a function that has allowed the bank to sustainably offer tailor-made financial solutions that are designed to facilitate the expansion and sustainability of these enterprises. The bank extends this value proposition by offering new products specifically targeting SMES, including pre-approved loan limits, for traders who deal in fast-moving goods like groceries and hardware; and construction, asset finance and working capital solutions offering consolidated financial solutions for MSME’s in business. In this article, Julius Ouma the Ag. Chief Executive Officer of Faulu Bank provides tips for increasing the chances of rural SMES to qualify and gain from these new and existing loan products:

Proper record-keeping

Maintaining accurate financial records is a good way to demonstrate your business’s stability and growth potential in addition to enhancing your transparency and credibility, which are crucial factors for lenders to assess your creditworthiness. SMEs are encouraged to maintain robust accounting systems that document income and expenses, while keeping track of inventory and sales. 

Consistent saving

Building a financial cushion through regular saving helps mitigate risks and demonstrates the business’s ability to manage cash flow effectively. By setting aside a portion of revenue for future investments and unforeseen expenses, you can showcase your financial discipline and resilience, making your SME attractive traits to lenders. Additionally, consistent saving contributes to your business’s long-term sustainability and growth, providing a solid foundation for accessing financing for expansion and diversification.

Relationship with your bank

Establishing a close working relationship with a bank representative allows SMEs to better understand their financial needs and options available to them. Relationship managers can give you valuable insights, guidance, and support throughout the financing process, from assessing the eligibility criteria to structuring loan terms that align with your business’s objectives and capacity to repay. A regular communication and collaboration with your relationship manager fosters trust and confidence, enhancing your likelihood of securing financing for your business.

Develop a well-defined growth strategy

A comprehensive business plan that includes attainable goals and key milestones, serves as an important roadmap for business expansion. Additionally, it boosts confidence in potential lenders, by showcasing your strategic approach to growth and financial responsibility.