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Asset Based Lending- Meaning And How it Works

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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.

Asset based lending

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:

  1. It covers short term needs in Kenya
  2. Companies and businesses use it to buy time, while shares or bonds in the capital market take time to arrive.
  3. It stabilizes businesses with physical assets to solve their immediate needs
  4. Businesses use to bridge the gap in companies or maintain cash flow
  5. It covers the working capital and also used to start up a business or company financing 
  6. 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:

  1. Mortgage financing 
  2. Account receivables 
  3. Logbook financing 
  4. Equipment financing 
  5. Inventory financing 

6 Examples of Assets Used in Asset Based Lending 

The lists of assets used for asset based lending are:

  1. Account receivable
  2. Inventory
  3. Marketable securities
  4. Property
  5. Plant
  6. Equipment 

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:

  1. It is easier to get
  2. They offer asset based lending with low interest rate
  3. The cash serves well in time if emergency 
  4. It involves fewer commitments and covenants 
  5. 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.

  1. KCB Bank
  2. NIC Bank
  3. Co-operative Bank
  4. I&M Bank
  5. HF Group
  6. Equity Bank
  7. Barclays Bank
  8. Stanbic Bank
  9. Family Bank
  10. 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:

  1. Mhasibu Sacco
  2. Unaitas
  3. Jamii Sacco
  4. Finlemm Sacco
  5. Wananchi Sacco Society Ltd
  6.  2NK Sacco Society Ltd
  7. Nyati Sacco Society Ltd
  8. AMREF Sacco
  9. Mwalimu Sacco
  10. Hazina Sacco

Another Name for Asset Based Lending 

Asset based lending is also known and seen as commercial finance and asset-based finance.

Conclusion 

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.

Diamond Trust Bank Kenya- All You Need To Know

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Are you interested in taking a loan? and know the ideas that matter about loans? Diamond Trust Bank Kenya is proud to offer a range of products spanning loan, retail, large corporate and investment banking relationships. You will be dealing with a diverse group of people who all want to leave their customers satisfied.

About Diamond Trust Bank Kenya 

Diamond Trust bank Kenya has an extensive branch network spanned across the country. It is a reputable financial service provider that offers a broad range of banking services for businesses and individuals. You can use their services to receive, store or send money, send international remittances, manage your account and get a personal loan from their online platform.

What does Diamond Trust Bank do?

Diamond Trust bank is a major banking group operating in Kenya, but also has branches across East Africa in Tanzania, Uganda and Burundi. Kenyans living abroad benefit from their loan services to solve their pressing needs.

How Diamond Trust bank Kenya works

Diamond Trust Bank Kenya provides a comprehensive range of retail and corporate banking products and services including Savings and Loan services , Mortgages, loans for commercial and personal purposes, Micro-credit program , vehicle financing and leasing. Visit the website to get the best loan offer you need. 

How to get loan from Diamond Trust bank Kenya 

Do you need a loan from the Diamond Trust bank Kenya? Please read on to learn more about this process, and get started today.

  1. Visit the website 
  2. Go to “Get a loan” 
  3. Choose the type of loan Product you want 
  4. Put all necessary personal information and documents 
  5. Wait for loan approval

How many branches does Diamond Trust Bank have in Kenya 

DTB has 130 branches in Kenya, Tanzania, Uganda, and Burundi. They operate a 24/7 digital  banking branches across Africa.

How do I check my DTB account balance?

To check your DTB balance is by dialing *382# or by downloading the DTB mobile app.

How do I transfer money from M Pesa to Diamond Trust Bank?

Sending money from Mpesa to a DTB Account is simple. Follow the steps below to achieve this:

  1. Launch and open  the M-Pesa toolkit/Safaricom App/M-Pesa app. 
  2. Select Lipa na Mpesa.
  3. Choose paybill and enter 516600 as the number 
  4. Input your DTB account number as the “Account No”.
  5. Type in the amount that you would like to deposit.
  6. Enter your pin number.

Conclusion 

Diamond Trust bank Kenya is the leading and premier banking institution in Kenya, and offers a wide range of personal and corporate loan services and products including: Personal Banking Services and loan services. Check out their website to enquire more and apply for the loan you had wanted.

List of Commercial Banks in Kenya (2024 Updated)

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The banking industry in Kenya is the financial services sector in Kenya, which includes commercial banks that provide banking services to individuals or corporations.

list-of-commercial-banks-in-Kenya

Overview of Commercial Banks in Kenya

Kenya is the hub for commercial banks in Africa because of its diversity in the market. Kenya has a wide range of financial institutions that are licensed by the central bank to carry out banking business on behalf of the customers. The Central Bank of Kenya regulates all financial institutions listed here except for Islamic banks, which are regulated by the Central Bank of Kenya, Sharia law.

Banki Kuu ya Kenya or the Central Bank of Kenya (CBK) supervises banks in Kenya. Founded in 1966 in Nairobi, CBK succeeded the East African Currency Board. Ultimately, the central bank has the responsibility of establishing a monetary policy aimed at price stability.

What is a bank?

Banks are financial institutions that accept deposits from the public and create demand deposits. They perform their activities either directly or indirectly and work with various institutions across Kenya.

What is a commercial bank?

In a commercial bank, deposits are maintained for people, and loans are made to individuals and companies.

How many commercial banks are there in Kenya?

The country presently has 28 domestic commercial banks and 14 foreign commercial banks with branches, agencies, or other outlets. The banks are 42 in number as of this research work.

What is the commercial bank lending rate?

The bank lending rate in Kenya is the rate of interest charged on unsecured loans by commercial banks to private individuals and companies.

Commercial banks lending rates in Kenya

Kenya commercial bank lending rate was reported at 12.120 % pa in Aug 2021 and the records increase from the previous number of 12.090 % pa for Jul 2021.

42 Commercial banks in Kenya 

  1. KCB Bank
  2. Investments & Mortgages Bank Limited – I&M Bank
  3. Imperial Bank Limited
  4. Housing Finance
  5. Guardian Bank Ltd.
  6. Giro Commercial Bank Ltd
  7. Fina Bank
  8. Fidelity Bank
  9. UBA Kenya Bank Ltd
  10. The Co-operative Bank
  11. Suntra Investment Bank Ltd
  12. Sterling Investment Bank
  13. Standard Investment Bank
  14. Standard Chartered
  15. Prime Bank
  16. Paramount Bank
  17. Oriental Commercial Bank Ltd.
  18. NIC Bank
  19. ABC Bank
  20. National Bank
  21. K-Rep Bank
  22. Kenya Post Office Savings Bank
  23. Faida Investment Bank – FIB
  24. Equity Bank
  25. Equatorial Investment Bank
  26. Equatorial Commercial Bank Limited
  27. Dyer & Blair Investment Bank
  28. Dubai Bank Kenya Ltd
  29. Dry Associates Limited
  30. Development Bank of Kenya Ltd
  31. Co-operative Bank
  32. Consolidated Bank
  33. Commercial Bank of Africa
  34. Citibank N A
  35. Chase Bank
  36. CFC Stanbic Bank Limited
  37. Central Bank of Kenya
  38. Bank Of Baroda (Kenya) Ltd.
  39. Bank of Africa Kenya Ltd
  40. Afrika Investment Bank
  41. African Development Bank Group
  42. African Banking Corporation

Conclusion 

You can now see all commercial banks in Kenya, check out our list of banks operating in the country today. The existence of commercial banks is essential in every nation for saving money and getting other essential financial services. Therefore, they are crucial to both the people and entrepreneurs because, without funds, they cannot grow.

How to Improve your Credit Score in Kenya

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Having a good credit score is one thing that makes you financially healthy. A good credit score can give you access to the best loans, leases, mortgages, and credit cards. But what if your credit score isn’t good? When it comes to poor credit score, there are steps on how to improve your credit score. 

Remember, rampant misinformation and myths abound. Still, there is a proven myth about improving your credit score that won’t fade: “Checking your credit score regularly and seeing the factors causing the low credit and working on it can improve your score”. Lenders can be reluctant to approve your loan when you have a poor credit score.

Banks and lenders ensure that individuals’ credit score is good before they consider lending. To avoid the risk of lending to a customer who has a high possibility of defaulting on repayments. But when you already have a poor credit score, there are ways to improve on it and that will be the center of our discussion in this article.

What are credit scores

Credit scores are an important factor that helps lenders decide if you can repay your loan. They are created from the information on your credit report. On the other hand, if you have a poor credit report, lenders might charge you a higher interest. Note that credit scores are information in your revolving credit.

Steps to improve your credit score

The first step you take in improving your credit score is by checking your scores on any of the CRBs agencies online. When you see your score, determine which of the factors affected your credit score. With these factors noted, you then map out changes to improving it. Moreso, you need to give it time for the changes you made to be reported by your lender before it reflects in your credit score.

Focusing on the actions that will improve your credit score, follow the steps below:

1. Pay your bills on time

Lenders review credit reports to request for your credit score. They are much interested in how reliable you are in loan repayments. That is because past repayments history affects the future performance. You can influence this by making your loan repayment on time.

In addition, paying late or defaulting negatively affects your credit score and leading to bad credit. However, you need to pay up all loans on time, whether student loans or any other loans. Likewise using resources like automatic payments or calendar reminders helps ensure you pay on time. If you are behind any payment, bring them forward as soon as possible. 

2. Apply for loans and open loan accounts when you need it

Avoid applying for loans and opening a loan bank account when you do not have any serious need for funds. Unnecessary credit can harm your credit score in various ways. It harms your credit report by tempting you to overspend and accumulate debts. Always apply for new credit when you are in need of money.

3. Do not apply for too much loans either as an individual or a group 

Applying for new loans as a group when you already have an individual loan running can increase your overall credit limit. These multiple loans often create a hard inquiry on your credit and it negatively affects your credit score. Only seek loan in moments where it is unavoidable.

4. Report any inaccuracies you notice on your credit report

It is recommended you check your credit report on all three CRBs we have in Kenya for any inaccuracies. Incorrect information on your credit reports brings your score down. If you have any error(s), report it immediately to the appropriate authority and correct it right away. Monitoring your credit regularly helps you spot errors that can reduce your scores.

5. Pay off your debt

Unwillingness in debt repayments may make you feel convenient, but you cannot escape the bad effect. When you pay off your debt, your credit score will benefit. It is better to have a means of repayment before taking out a loan. If not, your credit will suffer.

6. Consider debt consolidation

Having different streams of credit and loan running may prove detrimental to your credit score report. You can take up a loan and consolidate different debt accounts so that they are controlled, managed and paid off from one source.

7. Manage your credit card funds properly and do not consider closing unused credit card accounts

When you fail to manage your fund well, your credit card debt will accumulate. Credit cards are a major contributor to debt repayment defaults. Never consider closing unused credit card accounts. This may increase your credit utilization ratio.

8. Spend responsibly

Lastly, work on your spending because you can avoid default and late repayment by spending prudently. Keeping your credit record positive by spending responsibly can boost your credit scores. This can be achieved by setting up a budget, single out your priorities and living within your means. All these factors can help increase your credit score.

How credit scores are calculated 

Credit Reference Bureaus in Kenya calculates credit scores by applying a mathematical algorithm to the information provided by lenders. Their scoring models take into account the following factors:

  1. Payment history 
  2. Loan amount you regularly apply for and how often you apply for loan
  3. How long you have had the loan account opened and the type of account you opened. 

How long it takes to rebuild your credit score

When you have negative information on your credit history or report, try to pay up all your outstanding loans. TIME is your ally in improving on your credit. The amount of time it takes depends on the reason for such a negative score. 

Rebuilding your credit score takes time. Have patience and know that there is no shortcut to it.

How changes and quick loan repayment affect your credit scores

One change can affect figures on your credit report. There are factors surrounding the changes in the credit score. They are:

  1. Any changes you made or loan repayment you made to the credit report affects your credit score.
  2. Information on your credit report determines your score. Your credit score depends on your credit report.

Decisions taken after accessing your credit score

The information on your credit score and loan application form might be used to decide:

  1. Whether to lend you fund
  2. How much to lend you
  3. The interest to charge you

Your current financial information has the greatest impact on your credit score.

Conclusion 

An improved credit score can open doors for you. From helping you get the best loan with a competitive interest rate and terms to influencing how much you pay as insurance fee and other additional fees. Your credit reports and scores are considered when you are seeking for a job, renting an apartment and getting a lease.

Considering how important credit scores are to your overall financial aspects, it is advisable you assimilate the contents of this article and do everything you can to improve your credit score. Note that checking your credit score regularly is the first step. See the factors affecting it and focus on those factors first to improve your credit score.