This article seeks to reveal all you need to know about asset based lending in Kenya. In business, there are times to balance out corporate finance structure and maintain flexibility.
There are also times to operate cash, grow, consolidate funds and fund different acquisitions. For these to happen amid a lack of funds, it takes only a loan to solve these credit lines.
Most companies and businesses in Kenya rely on asset based lending to manage their financial resources. It is the financial outlet of last resort. For companies and businesses with many assets, it is the last tool in their business financial tool kit.
Let’s discuss asset based lending in Kenya and all you need to know.
What is an Asset?
An asset is a tangible equipment and machines and property a company owns that is used in running the business. Assets are long term physical or intangible properties. They can trade assets for liquid cash.
What is Asset Based Financing in Kenya?
It is a way companies and businesses in Kenya use collateral to get liquid cash. Collateral can come as asset, property, inventory, or account receivables.
Asset based lending in Kenya is mostly used by businesses and companies and not individuals. It is more flexible and easy to access.
How Asset Based Lending Works in Kenya
Asset based lending works by a business taking out a loan to meet demands by often an asset as a collateral. For example, Mr. Z opened a restaurant and invested more, but ran short of cash to offset payroll expenses.
The business then sorts for loans. He gets the loan by using his equipment or other assets as collateral. The conditions of asset based lending are on the principal amount and the value of the asset. Lenders also weigh the easy conversion of the asset to liquid cash in case of loan default.
Moreso, the cash is often less than the asset. The asset weighs higher and more valuable. The interest rate here is often lower since the borrower has reduced the risk of the loan by providing a collateral.
What Asset Based Lending Does in Kenya
Asset based lending solves a lot of need and they include:
- It covers short term needs in Kenya
- Companies and businesses use it to buy time, while shares or bonds in the capital market take time to arrive.
- It stabilizes businesses with physical assets to solve their immediate needs
- Businesses use to bridge the gap in companies or maintain cash flow
- It covers the working capital and also used to start up a business or company financing
- It is attractive, and an option for companies and businesses that stretches its credit limits.
5 Types of Asset Based Lending in Kenya
The various asset based lending in Kenya include:
- Mortgage financing
- Account receivables
- Logbook financing
- Equipment financing
- Inventory financing
6 Examples of Assets Used in Asset Based Lending
The lists of assets used for asset based lending are:
- Account receivable
- Marketable securities
How to Derive the Amount of Asset Based Lending
For the amount given out by a lender to a company or business for asset based financing, it is calculated. They calculate it based on the loan-to-value-ratio. Lenders in Kenya weigh the asset first and find out its market value.
Once it is ascertained, depending on the lender, 70% to 80% value of the security is issued out. The amount depends on the type of asset provided.
Take note that lenders are willing to offer higher loans for liquid wastes that can easily be converted to liquid cash. That is, loan-to-value-ratio = loan amount/asset value.
Loan amount: This is the amount the lender is willing to lend out
Asset value: this is the value of the asset being used as collateral for the loan.
5 Advantages of Asset Based Lending
The good side of asset based lending are:
- It is easier to get
- They offer asset based lending with low interest rate
- The cash serves well in time if emergency
- It involves fewer commitments and covenants
- You can borrow daily and still pay back.
10 Financial Institutions in Kenya that offer Asset Based Lending
This is a list of some banks that you can access asset financing in Kenya.
- KCB Bank
- NIC Bank
- Co-operative Bank
- I&M Bank
- HF Group
- Equity Bank
- Barclays Bank
- Stanbic Bank
- Family Bank
- CBA Bank
10 Saccos in Kenya that Provide Asset Based Financing
Here is a detailed list of a 10 Saccos in Kenya that provide asset based lending in Kenya:
- Mhasibu Sacco
- Jamii Sacco
- Finlemm Sacco
- Wananchi Sacco Society Ltd
- 2NK Sacco Society Ltd
- Nyati Sacco Society Ltd
- AMREF Sacco
- Mwalimu Sacco
- Hazina Sacco
Another Name for Asset Based Lending
Asset based lending is also known and seen as commercial finance and asset-based finance.
Some companies prefer to use asset financing in place of traditional funding, as they based the funding on the assets themselves, rather than the bank’s perception of the company’s creditworthiness and future business prospects.