When credit is not the right solution for your business

Traders display their wares in Kisii town. [Sammy Omingo, Standard]

For many business owners, whenever there is a cash crunch, the instinctive response is to borrow.

Rarely do entrepreneurs consider non-cash options that can provide their enterprises with the lifeline they need.

The allure of liquid cash, notes Ecobank Kenya Director Commercial Banking Victor Mbaabu, makes many small and medium enterprises (SMEs) take overdrafts.

“Most SMEs love overdrafts because no one will ask questions on how you use it,” he says. But there are options in the market that will not drown your business in debt.

“When it comes to funding, it is not always about liquid money. There are various forms of funding,” he says, citing structured facilities and trade solutions available in the market.

For example, if you are dealing with suppliers, you can access bank guarantees to manage your costs. Another example is in the import and export business.

“Do you really need to send cash upfront as you wait for your goods to come in? We can give you Letters of Credit (LCs),” he says. “Do not always look at funding as liquid cash because it certainly comes at a cost.”

Mbaabu was speaking during a roundtable between the bank and SMEs, as part of the institution’s renewed focus on small businesses following the appointment of Rebecca Mbithi as managing director.

Mbithi highlighted the bank’s regional footprint, saying businesses can use its trade hub to access these markets, alongside the tailored facilities it offers.

“Financing is not the only thing you need, or the only pillar of business success. We want to give you networks, experts and markets that take you to the next level,” she said.

“This international presence in France, the United Kingdom, Dubai and China will help you carry out trade across the continent and the globe.”

While finance will always feature prominently in different forms as the major challenge for businesses, a Parliamentary report echoes the bank’s view that not all problems require a cash-based solution.

Of the four key challenges cited in the report published in March this year, high informality and market access feature in the list. The other two are financially related, namely high cost of doing business and access to finance.

“Some MSMEs face credit challenges due to small size, lack of collateral, weak credit histories and informality,” the report says.

“High interest rates and tighter bank lending (due to fiscal crowding and elevated rates) have worsened credit access.”

The Report on the Micro and Small Enterprises (Amendment) Bill (National Assembly Bill No.25 of 2025) cites weak market linkages, inconsistent product quality and low branding as some of the reasons that reduce the competitiveness of small businesses in the formal public and private supply chains.

Melanie Mariame, chief Executive and co-founder of Melanin Capital, a fintech that funds eco-friendly businesses, pointed out that while some aspects of an enterprise, such as branding, are critical, they are rarely financed through loans.

"For that reason, if a business seeks to access financing, there are four key questions whose answers will dictate access: 'what can I finance, exactly? How much does it cost? How do I pay that money? What does the financier need from me?'" said Mariame

She said the first question is the challenge for businesses to answer.

“As a business owner, you are everything – the secretary, accountant, salesperson – and you are struggling to segment the aspect of your business that needs to get growth,” she says.

“You have your internal research and development to improve your branding and marketing, and that is not financeable with loans, yet it is the first thing that comes to mind.”

Mariame said whenever a business owner chooses to go for a loan, it needs to make sure their margins can accommodate the facility. For example, from the businesses Melanin Capital lends to, the margins are between seven and 35 per cent. Agriculture has the lowest.

As such, it would not make sense to get a facility that charges 30 per cent for a margin that is a single digit.

“How then can I finance it differently? Can I finance it through revenues? Sometimes you are doing too much supplier credit, and you have to balance that through negotiations,” she said.