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Start-up financing in Kenya: The best tips

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Without financial start-up support, many business ideas cannot be implemented. Buying a new computer and printing business cards might still be possible with your savings, but when six-figure investments in real estate, vehicle fleets and machines are pending, solid start -up financing is required for the success of your start-up…

Definition: What is start-up financing in Kenya?

The term start -up financing includes all measures that are taken in the start-up phase to raise the necessary money . From this point of view, the listing of your costs (foundation costs, investments and money to bridge the start-up phase) is the first step in your start-up financing.

The biggest hurdle, however, is convincing a financier to invest in your idea before sales numbers show its likelihood of success.

Read more: How to be successful with your business after securing a financing option.

Financing options for entrepreneurs in Kenya

In Kenya, founders have a wide range of financing options at their disposal. What is a good thing on the one hand, on the other hand, means that some people lose track of things. It is often difficult to find the best individual solution.

If you feel the same way, you should visit online start-up platform. They not only provides an understandable overview of the various financing options in Kenya, but also filters them based on the capital requirements and the individual requirements of the founders.

The most important forms of financing for founders  or entrepreneurs in Kenya are equity, bank loans, public development loans and equity capital. Below we give you a brief overview of their respective advantages and disadvantages:

equity

Own funds should form the basis of any start-up financing. The rule here is: the more, the better. Because you can only use your own money quickly and flexibly . This is important, for example, if you want to compensate for missing sales or react to sudden market changes. More and more start-ups are carried out exclusively with equity and money from Friends and Family. How so? Purchasing is becoming cheaper and cheaper through global procurement and sales can now be organized via the Internet in such a way that no complex sales structures have to be created. In addition, more and more people appreciate the independence and freedom of an independent foundation that is not determined by external constraints. This form of financing is called bootstrapping .

Bank loan (business start-up loan)

The first step for many founders who depend on external financing usually leads to their house bank . In fact, classic bank loans for start-up financing are better than their reputation: the conditions are quite fair, especially for long-term financing (much less so for short-term overdrafts) and a bank loan preserves the independence of the founder – because the bank does not require a say in the company or shares in it. She just wants to see her money and interest back at the agreed time. The rule of thumb is: The greater the uncertainty caused by innovative business models , the lower the chances of getting a bank loan. However, this also applies the other way around: Business ideas that have already shown several times that money can be made with them are gladly financed by banks. We have compiled such business ideas for you here on the start-up platform. However, it becomes difficult to get a bank loan if there is no collateral. Banks are required by law not to take any unforeseeable risks. Therefore, an equity share of at least 20 percent is usually required. A high proportion of equity not only minimizes the risk for the bank, it is also seen as a sign that the founder is fully behind his idea and will do everything for the success of his company – after all, he himself has the most to lose.

Public promotional loans

Because start-ups and young companies contribute to a competitive economy and create jobs, the state supports them with a wide range of financing and funding offers. An important pillar are low-interest promotional loans for founders .

A big advantage of public development loans – in addition to low interest rates and long terms: Borrowers are often granted a repayment-free start-up phase of some years for their business to “pick”. This means that it is conserved precisely at the time when liquidity is scarce.

venture capital

It is particularly difficult for risky and innovative start-ups to get a bank loan. Then equity capital is a viable way of financing. With this form of financing, private or institutional financiers buy shares in a company and thus increase its equity.

Other names for venture capital are venture capital , venture capital, or venture capital . This makes it clear what the issue is: venture capitalists do not require collateral. They trust that a new idea will prevail and that their commitment will pay off in the future through profit sharing.

In return, as co-owners, they usually demand voting and influence rights in the company. Although this limits the decision-making scope of the founders, it can also be an advantage if the investors contribute to the success of the company through their experience and contacts.

Exceptions are so-called silent participations , in which the investors make a contribution and only expect a profit share in return. The founders keep the reins in their hands and do not give up any say in the matter.

Prerequisite to successful financing: A solid business plan

Whether it’s a bank loan or an investment, a business plan is almost always a prerequisite for obtaining financing. It shows that your start -up project has a chance of success and that you are the right person to implement it.

On the start-up platform you will find an ingenious tool that will guide you safely through all sections of your business plan and make your planning easier with digital number assistants .

When writing your business plan , pay attention to the following points – your readers will thank you:

  • Write clearly and don’t bore with too many technical details.
  • Put the economic feasibility of your project in the foreground – because that is what your business plan is primarily about.
  • Use tables, graphics and pictures to illustrate your project.
  • Make sure you have an attractive design.
  • Stick to a generally accepted outline.

The numbers part of your business plan is often referred to as the heart. Be prepared that your potential financiers will take a very close look here. At the same time, make yourself aware that it is not important to calculate the numbers nicely. Not the venture with the highest profit prospects , but the one with the most plausible rationale (why do you think profits will increase on the curve you outlined?) will get the nod.

Your potential financiers are particularly interested in these numbers:

  1. Capital and funding needs

    Whatever you have in mind, before you start a business, you should calculate how much capital you need. Keep in mind that you will probably also need money for your livelihood in the beginning – because it can take weeks or even months for a young company to make a profit for the first time.

    The readers of your business plan want to know right away what is expected of them. It is therefore important that the capital and financing requirements are not lost somewhere in the figures, but are immediately apparent. Mention in the summary, which is usually at the beginning of the business plan, how much money you need, what you want to use it for and by when you will pay it back.

    You should also clearly quantify your equity share. Especially with a share of less than 20 percent , you should have a good reason why it is still worth investing in your project.

  2. liquidity

    Every meaningful business plan contains a liquidity plan for the first three years. It shows how the founder’s account balance will develop – i.e. how much money is actually available to him and when.

    A lack of liquidity is one of the most common reasons for start-ups to fail. Ideally, your liquidity planning shows that even in a worst-case scenario where sales fall short of expectations , you will be able to pay off your loan with interest.

  3. profitability

    In your profitability plan , you compare the planned income with the expenses (for goods and materials used, operating costs, taxes). The sooner you are in the black, the better – for you, but also for your financiers.

    If possible, you should achieve a positive result in the first year and be able to live on the earnings in the second year at the latest. Be sure to resist the temptation to simply increase your projected sales in the profitability plan until you have a positive result. A reputable financier will see through this maneuver immediately and will critically ask how you came up with your numbers.

Forms of financing for your project

The question of financing is a neuralgic point for many founders on the way to self-employment. Although there are many different financing methods, it is not easy for them to put together the right financing package for them.

Irrespective of which form of financing is the right one for your project: with good preparation and a convincing business plan, you will gain the trust of your financiers.

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