List Of All Non-Bank Business Loans In Kenya

Whether starting a new business, scaling up an existing venture, or managing day-to-day activities such as stocking up, paying employees/suppliers, or repairing equipment, companies may rely on financing to achieve their goals. 

Traditional bank loans have been a common choice for entrepreneurs looking for funds to support their ventures for years. However, bank business loans often involve a lengthy application process, especially for first-time borrowers. For small business owners looking for quick funding when time is of the essence, non-bank lenders can offer an alternative. 

Non-bank business lenders are financial institutions that offer credit services in a different approach than traditional commercial banks. They typically cater to the needs of customers looking for alternative financing options and those who do not tick all the traditional banks' boxes. 

The key differences between non-bank lenders and traditional banks manifest in terms of regulation and oversight, lending criteria, and loan types and specialisation. 

Read Also: Are You Banking With the Right Bank?

Advantages and Disadvantages of Non-Bank Lenders 

In recent years, non-bank lenders have emerged as appealing alternatives to traditional banks, primarily due to their innovative lending methods, efficient processes, and catering to diverse borrowers. However, it's important to approach them with a comprehensive perspective. And that requires weighing the pros and cons of this financing route. 

Pros of Non-Bank Lenders

1. Quick and Streamlined Application Process: Non-bank lenders frequently leverage technology and employ innovative approaches to provide faster and more efficient services. This can result in streamlined processes, quicker approvals, and better overall customer experiences.

2. Flexibility in Terms and Repayment: Non-bank lenders are more flexibility when it comes to structuring loan terms and repayment options. This can allow borrowers to tailor their loans to suit their specific financial needs, and you have more negotiating freedom.

3. Accessibility for Small Businesses and Startups: Non-bank lenders may be more willing to work with small businesses and startups with limited or no credit history and lower credit scores. This can provide opportunities for these entities to access much-needed financing that they might not be able to obtain from traditional banks.

4. Creative Financing Solutions: Non-bank lenders often offer innovative financing options beyond traditional loans. These may include revenue-based financing, equity crowdfunding, and other creative alternatives that cater to diverse borrower needs.

5. Creative Collateral Choices: Non-bank lenders may accept a broader range of collateral compared to traditional banks. This can give borrowers more flexibility in securing their loans, potentially allowing them to use assets that banks might not consider.

6. Freedom of Fund Usage: Unlike banks, which may impose restrictions on fund usage, non-bank lenders typically allow borrowers to allocate funds according to their specific business needs and goals.

7. Specialized Services: Non-bank lenders often specialize in serving niche markets or underserved population segments. For example, suppose you want an auto loan to start an Uber business. In that case, you will find lenders offering Uber car loans, which are often different from traditional auto loans from commercial banks.   

Cons of Non-Bank Lenders

1. Expensive: Non-bank lenders often charge higher interest rates and fees than traditional banks. This is because they typically cater to borrowers who pose a higher risk for the lender. They may also impose additional loan charges, such as origination fees or prepayment penalties. These extra costs can add up and increase the overall expense of borrowing.

2. Limited Regulatory Oversight: Some non-bank lenders may operate with less stringent regulatory oversight compared to traditional banks. This can increase the risk of predatory lending practices or unfair treatment of borrowers. It's vital to ensure that any non-bank lender you work with is properly regulated and licensed by the CBK or relevant government authorities to protect your interests. For example, Saccos are regulated by The Sacco Societies Regulatory (SASRA).

3. Shorter Repayment Terms: Non-bank loans may come with shorter repayment window, leading to higher monthly payments and potentially causing strain on a business's cash flow. This can make it challenging for borrowers to meet their financial obligations and may increase default risk.

4. Unfriendly Terms and Conditions: Non-bank lenders may impose less favorable terms and conditions on loans compared to traditional banks. This could include higher collateral requirements, stricter repayment terms, or less flexibility in modifying loan agreements in case of financial difficulties.

5. Limited Access to Additional Services: Non-bank lenders may not offer as many financial services as traditional banks. This could include wealth management, investment advice, or insurance products. Additionally, since most non-bank lenders are non-deposit-taking financial institutions, don’t give cheque books, etc., they may not offer the same level of convenience, front-office, or access to banking services as traditional banks.

List Of All Non-Bank Business Loans Lenders

Microfinance Banks 

Microfinance banks are CBK-regulated financial institutions that provide financial services, including small loans, to low-income individuals and small businesses. Microfinance banks focus on serving low-income clients and typically offer smaller loan amounts than traditional commercial banks. These loans are often used for starting or expanding small businesses. 

MFBs also tend to have more lenient eligibility criteria and may offer financial education, traditional banking services, and support services alongside loans. The main goal of MFIs is to promote financial inclusion and support economic development in underserved communities and demographics such as women and the youth. 

While MFB loans can come in handy, their interest rates can be higher than traditional banks, and depending on the borrowed amount, you may require collateral. Additionally, they typically have limited loan amounts that may not meet the needs of larger businesses.

Microfinance Institutions 

Similar to microfinance banks, microfinance institutions (MFIs) provide financial services, including small loans, to individuals and small businesses in underserved populations, often referred to as "micro-entrepreneurs" or "the unbanked." They focus on serving marginalized communities and may offer services tailored to the needs of those communities, such as group lending or village banking. 

MFIs may specialize in offering specific financial products tailored to the needs of their target market. For example, some MFIs may focus solely on providing agricultural loans, microenterprise loans, or logbook loans for businesses. This specialization allows them to develop expertise in serving specific sectors or addressing particular financial needs. It also allows them to offer lending schemes that align with the cash flow patterns of seasonal businesses. 

Unlike traditional banks that often rely heavily on credit scores and collateral, MFIs emphasize relationship-based lending. They build trust and rapport with their clients through personalized interactions and a deep understanding of their businesses and aspirations. This allows them to serve entrepreneurs who lack collateral, have irregular income streams, or have limited financial literacy. 

The biggest downside of MFIs is that some institutions may not offer the full range of services typically provided by traditional commercial banks, such as front-office services and long-term business loans. Additionally,  MFIs typically operate on a smaller scale with fewer branches.

Read Also: Unique Business Opportunities to Pursue in Nairobi 

Business Digital Lenders 

Digital lenders are online platforms that provide loans to businesses, often with a streamlined application and approval process. They use technology to assess creditworthiness and facilitate loan disbursement, often with quick approval and funding processes. 

Digital lenders offer a more convenient and faster loan application process compared to traditional banks. They may also use alternative data sources for credit assessment. This speed and convenience can allow businesses to access funding quickly, sometimes within a day.

Business loans from digital lenders may attract higher interest rates than traditional loans. The credit limit may also be higher than personal digital loans offered by Digital Credit Providers (DCPs), but the eligibility criteria might not be as lenient. 

Examples of digital business loans include agribusiness loans from Avenews, Boost ya Biashara from Safaricom, Pesapal Credit from Pesapal, and M-PESA Business Loan from Safaricom in partnership with Asante.

Read Also: How to Pick the Best Digital Loan for You 

Logbook Loan For Business 

A logbook loan for a business involves using the business's vehicles, such as commercial trucks, vans, etc., as collateral to secure a loan. When a company takes out a logbook loan, the lender places a lien on the vehicle's logbook through the NTSA in-charge process. This means the lender has a legal claim to the vehicle until the loan is fully repaid. 

Logbook loan providers focus on asset-based lending. This approach allows businesses to leverage their existing assets to access financing without providing additional collateral. The application process for a logbook loan is usually streamlined, and funds can be disbursed relatively quickly once the loan is approved. This can be crucial for businesses needing immediate capital access to seize opportunities or address cash flow issues. 

MFIs, MFBs, and other non-bank institutions often provide logbook loans. They may have less stringent eligibility criteria compared to traditional banks. For instance, you can access capital without requiring a high credit score or a co-signer. However, you should be wary of the interest rates and the risk of losing your vehicle if you default. 

Read Also: I Want to Take a Logbook Loan to Support My Business. Should I? 

Sacco Business Loans 

SACCOs (Savings and Credit Cooperative Organizations) are member-owned financial cooperatives providing their members savings and loan services. SACCOs pool members' savings to provide loans to other members, often at lower interest rates than commercial banks. 

Saccos are often formed by groups of people who share a common bond, such as employees of a particular company, members of the same church, etc. They were created to offer an alternative to traditional banking institutions, which might not have been easily accessible or responsive to the needs of these groups.

One of the primary objectives behind establishing SACCOs was to provide members with access to affordable credit. Many SACCOs were formed specifically to help members access cheap credit to advance themselves economically, whether to start a small business or grow existing ones. 

Unlike traditional banks, which rely primarily on external funding sources, SACCOs leverage their members' savings to provide loans to other members. This creates a virtuous cycle of savings and lending within the community, promoting financial inclusion and self-reliance. 

One unique feature of SACCO business loans is the ability for members to borrow against their accumulated savings and shares in the cooperative. This approach lowers the barrier to entry for borrowing and enables access to credit without traditional forms of collateral. 

In addition to borrowing against savings and shares, SACCOs often employ a guarantor system to mitigate risk and ensure loan repayment. Instead of requiring traditional collateral, borrowers may enlist fellow members as guarantors/co-signers. 

Read Also: 5 Reasons to Join a Sacco in 2024

Angel Investors 

Angel investors typically provide capital to businesses in exchange for ownership equity/stake in the company. However, other angel investors can offer financing in exchange for debt through loan agreements rather than equity ownership. 

Angel investors assess businesses for potential investment opportunities and provide funding in exchange for repayment with interest over a specified period. Angel investors offer more flexible terms and may be willing to take on higher risk in exchange for potentially higher returns. 

For entrepreneurs, this is welcoming as they can raise money without diluting ownership or losing control of their business. Most angel investors are also successful business owners who can offer mentorship and strategic guidance in addition to capital. 

However, angel investors may charge higher interest rates considering the risk they're taking with you. They are also rare to come by; the competition for their investment is often high, and their eligibility criteria may be very stringent. 

Read Also: Shortest Route to Fund Your Small Business in Kenya

Supplier Financing Programs 

Supplier Financing Programs involve a financial institution or third-party platform partnering with buyers and suppliers to facilitate early payment on suppliers' invoices. 

Businesses can benefit from Supplier Financing Programs by optimizing their working capital management. They can extend payment terms without negatively impacting their cash flow, strengthen their relationships with suppliers, and negotiate for better terms/discounts as they can pay on time.

Supplier financing programs are often tailored to specific industries or supply chains and may offer more favorable terms than traditional bank financing. They provide a convenient way to restock for businesses and integrate with the restocking process.

Peer-to-peer Lending

Peer-to-peer lending platforms connect individual investors with borrowers, allowing investors to fund loans directly. Borrowers apply for loans through the platform, and investors choose which business to fund based on risk and return criteria.

Peer-to-peer lending bypasses traditional banks, allowing borrowers to access funding directly from individual investors. It offers an alternative source of financing for businesses, often with competitive interest rates and flexible terms.

However, due to limited regulation compared to traditional banks, borrowers may be exposed to predatory lenders. The peer-to-peer lending industry in Kenya is still in the infant stage, and there are limited lenders available, especially for larger loan amounts.

Read Also: Peer-to-Peer Lending In Kenya: Everything You Need To Know 

WRAPPING UP 

Each lender offers different interest rates, loan terms, eligibility criteria, and repayment flexibility. This is why it is vital that before you borrow from any institution, you should take time to compare them to alternative lenders. This will ensure your business can secure a loan with terms and conditions tailored to the specific needs of your business. 

The Money254 portal facilitates this comparison by providing a centralized platform to evaluate business loans from non-bank lenders like MFIs, MFBs, logbook lenders, and digital lenders. It compares loan costs, terms, funding speed, eligibility requirements, and regulatory compliance against each other and those of commercial banks.