By YERH_TEAM
When Shiku Minjire was a Journalism and Mass Communication studies student at Mount Kenya University, venturing into business had never crossed her mind. She had many business ideas, but she was scared of taking bold steps to start off because she assessed that a lot of money was needed, which she did not have. Shiku had envisioned her life around newsrooms preparing for shows and all that is expected of a journalist in a production room, but that is not her life today.
Let Shiku tell her story.
“Initially, I was a student taking Journalism and mass communication at MKU, some unavoidable circumstance came up and I could not continue with college, I was having around Kes. 5,000 which had been sent to me for hostel rent. My brother and I had to come up with something I could do to avoid being idle. So, he introduced me to online trading. With my five thousand shillings I started selling simple products, that was in January 2022. I would buy products at wholesale price then advertise on Facebook and Instagram. Before I started, I could not imagine starting any reasonable business with such an amount, but today I can tell you, a business, depending on type and demands, can even start with one thousand shillings only. Currently, on my social media page, “Dynamo fitness” I sell gym and fitness equipment and on “Haven collections”, I sell a variety of things from kitchen items baby items and lady items. All these from a Kes. 5,000 start-up, my goal is to grow bigger and better.”
Yes, to start a business you need money. But where can a young person with no assets for collateral get funds for a startup business? Many young people are stuck with sweetheart innovative business ideas because they do not know where to get funds to start the venture. This article shares insights on some sources of financial capital without any security.
Family and Friends
This is one of the easiest, convenient, and affordable sources of venture funds which comes with relatively more favorable terms. Family and friends, like in Shiku’s case, can be reliable sources of startup capital. If you know a family or a relative with some financial muscles do not fear approaching them for help. The advantages of using funds from family and friends include:
- Ability to negotiate flexible repayment terms including interest charged and repayment period.
- In most cases no security is required
- Sometimes it may be a soft loan meaning no interest is charged.
- It does not require a detailed business plan.
Your approach to family and friends should not be one of entitlement and should not be construed as such. It is a mistake to imagine because someone is related to you they are obliged to help you. Yes! Even your mum and dad are not obligated. When you reach out to family and friends consider the following.
- As you talk to your friends and family, clothe yourself with humility and boldly sell your business idea as a viable endeavor.
- Having a business plan is a sure way of pitching and convincing them to support your venture. You can ask for financial support or negotiate for a soft loan.
- Make it clear to the family or friend how much money you need and for what use.
- Provide details of a repayment plan that you can afford.
- Draw a formal agreement to detail amount borrowed, repayment plan, how to resolve disagreements, and interest charged. This does not necessarily require a lawyer.
If a loan is extended to you by a family or friend, be faithful to repay or if the business has not picked up, keep your financier duly informed and beg for their patience. Paying back opens doors for further funding. By doing so you are cultivating an important virtue called trust. Your financier can trust you when you keep your word.
Mobile loans
Mobile loans provide a convenient and fast way to access credit for your business startup and are unsecured. They also charge relatively low interest. Initially, the digital lender will only loan you a small amount of money, but as you keep on repaying and your credit rating improves, you will be able to access higher amounts. These loans are apt for financing day-to-day expenses and plugging short-term cash shortfalls. The tenure of the loan can range from a few days to a month. There are over forty digital lending companies that charge different interest rates and varying loan terms. Pay careful attention to exact cost of the loan (interest rate and other fees charged) and recovery practices as some of them can be unscrupulous. The disadvantage of mobile loans is that the amount offered can be too low to sufficiently finance your start up and have a very short repayment period. Some of the digital lenders have unethical practices that may damage your reputation especially if you delay in repaying the loan.
Overdrafts
A bank overdraft allows you to overdraw your current account. Normally the bank, depending on your current account’s transaction activity, will set a limit of the maximum you can overdraw. Nevertheless, for you to be allowed to overdraw, you have to apply for the overdraft. Overdrafts are helpful in bridging short-term cash shortages like financing daily expenses. No security is required but an overdraft is relatively more expensive than a conventional bank loan. For startups and entrepreneurs without banking history, negotiating an overdraft facility is not easy. Before you apply for an overdraft, it would help if you allowed your current account to transact for at least six months. Once an overdraft facility is approved, you can utilize it as many as times as you want without the need to apply again unless you want to increase allowed limit.
Government supported financing institutions
The government of Kenya has financing programs that are facilitated through business financing institutions like the Youth Enterprise Development Fund (YEDF), Women Enterprise Fund (WEF), Uwezo fund, and the Financial Inclusion fund popularly known as Hustler Fund. The YEDF (https://www.youthfund.go.ke/) provides financial and business development support services to youth-owned enterprises; a youth is a person between age 18 – 34 years. YEDF offers a grace period for repayment of up to three (3) months and requires individuals applying for loans to provide collateral in form assets including household items, livestock, etc. But, if you are in a registered youth group you can access the loan without any collateral provided the group acts as your guarantor. The mandate of YEDF, which has presence in all the 47 counties, include:
- Offering loans to youth-owned enterprises.
- Providing market support to youth enterprises.
- Facilitating youth enterprises to develop linkages with large enterprises.
- Providing trading premises and worksites.
- Provide business development services and mentorship programs to youth-owned enterprises.
For business loans, YEDF can lend up to Kes. 1 million, depending on your credit worthiness, and a repayment period of up to 6 years. The interest rate charged is 6% per annum with a 1% arrangement fee.
The Uwezo Fund (https://www.uwezo.go.ke/) supports women, youth, and persons with disabilities to access finances to promote businesses and enterprises at the constituency level and application forms are available in the CDF offices. The Uwezo Fund:
- Offers business training to beneficiaries before receiving funding.
- Operates table banking model meaning you have to be a member of a self-help group to access the loan facilities.
- Does not charge interest.
- Links the beneficiaries to access to government procurement opportunity.
- Offers mentorship programs to the fund beneficiaries.
- Business Development services and mentorship programs.
- Offers up to six months grace period before starting to repay the loan and a loan term limit of up to 24 months.
The Financial Inclusion (Hustler) Fund (https://www.hustlerfund.go.ke/) is a government fund that lends money to Kenyans through their cellphones. The purpose of the Fund is to provide financial empowerment and security to low-income earners and cushion them from exploitation from unscrupulous lenders. Repayment of the Hustler Fund loan is within fourteen (14) days from the borrowing date at an interest of eight (8) per cent per year and you can borrow from Kes. 500 up to a maximum of Kes. 50,000. Nevertheless, to borrow higher amounts you have to build your creditworthiness by borrowing small amounts and repaying in time. The Hustler Fund does not require any collateral, there is no CRB listing, and does not send threatening demands. It also operates a saving scheme which is mandatory for all beneficiaries. The Hustler Fund, just like overdraft and mobile loans, can be used for short-term cash requirements.
The Women Enterprise Fund (WEF) info@wef.co.ke provides accessible and affordable credit to support women start and/or expand businesses. The Fund has constituency level facilities that do not charge any interest. Loans are extended to women who are members of registered women groups. The women self-help groups act as guarantors of their members when they borrow loans. The loans have a grace period of one (1) month and repayment period of up to 24 months.
For more information about the products offered by these institutions, you can visit their websites.
Let us get a word of advice from Mr. Antony Chege, an entrepreneur at the KCA University Research, Innovation, and Incubation hub. According to him “business financing is not a major problem in Kenya the problem is entrepreneurs’ lack of capacity to get the finances”. He goes on to point out “from my experience many young people venturing into business do not have a working enterprise structure, have no critical growth plan, lack measures to assess impact of their enterprises, and have little knowledge of managing human resources. Without these in place finances will not help much. The entrepreneur must first work on building these capacities and learn to network to get the necessary business funding.”
When considering various financing options carefully think about your financing needs, whether they are short-term or long-term. Short-term financing needs such as LPO financing, can be serviced using family and friends, digital loans, Hustler Funding, and overdrafts, but longer-term financial requirements, for example, asset financing should be financed using longer term loan facilities like those offered by YEDF, WEF and Uwezo Fund. Remember, borrowing and repaying builds a trusting relationship with your lender and improves your credit worthiness, as well as your ability to access more funding for expanding your business. Finally, before you take a loan, have a clear and well-thought-out plan of how to invest the money and the expected returns. Do not divert money meant for business to other uses like personal expenses and luxury.
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