What you need to know know about LPO financing in Kenya

I got an LPO the other day. It is one of the best days in an entrepreneur’s life. The first thing you do is to take a screenshot and send to your supporters. Your team, if you have one, your friend who believes in your product and maybe you family, to confirm that starting a business was not a mad move.

My greatest challenge was to get a product out and after months of trying, I finally came out with a product that was tested and could work. To get the word out about the product was another challenge.  I was weeks of driving around with my product from office to office. My boot and my back seat looked like a retail shop. It still does.

I spent every dime to develop the product and now between fundraising for looking for market, I am one tired entrepreneur.

So what are my options to finance this LPO?

Banks

If you bank with a Bank like mine, you will realize that getting financing for an LPO is a ceremony like asking for a mortgage. First they will want to know how legit the company giving you the LPO is. When you deliver the necessary documents, they will pretend that they are calculating interest based on how good a customer you are, and when done, they will ask for collateral. Then they will end up giving you 22% interest rate. This whole process can take as long as 3 weeks which as a first time supplier, is not good for you.

Shylock

Well, these are sharks. They don’t play around with their money. Their interest ranges from 15% –  25% per month.  If your LPO will be paid after 90 days, start calculating the interest you will pay them, and you will see all your profits go to a shylock. Avoid them as much as you can.

Friends

There is that time of the month where all your friends claim to be broke. That is still a mystery to me. I used to have a circle of friends that would revolve Ksh 5,000 around us. Someone is borrowing 2000, another is borrowing 3,000. When you start a business, you soon realize that you cannot rely on friends who are used to sending you two thousand bob on Mpesa to sort out electricity, fuel etc. If your LPO is say Ksh 500,000, you will start asking yourself why you don’t have friends with money. This is a lesson. To expand your networks and get business acquaintances. Also, work hard to have that kind of money to loan to your friends for business, that way, they can loan you when you get stuck.

Umati Capital

After sourcing for funds  and doing the delivery, I learned about Umati Capital. Founded in 2012 by two young men who saw a need to help SMEs fund their LPOs. Umati Capital is an invoice discounting and SME working-capital solutions company.The duo saw an opportunity to create an investment product for the public through their loans to these SMEs . They have created a platform to support  SMEs wih short term debt.

If you are a supplier and have to wait months for payments, I would suggest that you visit Umati Capital for a short term loan with little interest.