A bank loan can finance stock, equipment or growth, but many applications fail for avoidable reasons: missing documents, unclear numbers or a request that does not match the business. Preparing properly improves your chances and also tells you whether you can afford the loan at all.

Decide what you need and why

Start by being specific. How much do you need, what will you spend it on and how will it earn the money to repay itself? A loan to buy a machine that increases output is easier to justify than money for general expenses. Choose a term that matches the life of what you are buying, and remember that interest is a real cost. Our guide to borrowing for your business: loans and tax explains how interest is treated for tax.

Understand how lenders think

Lenders want to know three things: can you repay, will you repay and what happens if you cannot. They look at your cash flow, your history with credit and the security you can offer. Regular income in your bank and mobile money statements, a clean record with other lenders and a tax-compliant business all help. Poor records and unpaid taxes are common reasons for refusal.

Gather your documents

Most banks ask for a version of the following:

  • business registration documents and your KRA PIN;
  • a valid tax compliance certificate; see getting a tax compliance certificate;
  • six to twelve months of bank and M-Pesa statements;
  • financial statements, such as a profit and loss account and balance sheet;
  • a cash flow forecast and a business plan;
  • identification documents of directors or owners;
  • details of security, such as a title deed or vehicle logbook.

Prepare the financial statements

If your records are weak, fix them first. A profit and loss statement shows whether the business makes money, and a balance sheet shows what it owns and owes. How to read a profit and loss statement and how to read a balance sheet explain what lenders are looking for in them. Reconcile your bank accounts monthly so the numbers match; see bank reconciliation, step by step.

Build a realistic forecast

Show how the loan will change the business. Estimate extra sales, extra costs and the monthly repayment, and then check whether cash stays positive in the slowest month. The loan affordability checker and schedule works out the repayment for a given amount, rate and term, and the 12-month cash flow forecast shows whether you can afford it. Read cash flow forecast for a small business for the method.

Write a short business plan

A good plan is short and honest. Explain what the business does, who the customers are, how it makes money, who runs it and how the loan will be used. Include risks and how you will manage them. How to write a business plan that banks and investors accept gives a structure to follow.

Know the cost

Compare the interest rate, the fees, insurance and the penalties for late payment. Ask for the total amount you will repay over the full term. Compare at least two lenders, including SACCOs and microfinance institutions, and check whether the repayments fit your income during slow months.

Be ready for questions

Expect questions about large deposits, gaps in the statements, outstanding debts and the owners' own contribution. Have clear answers ready. Banks like to see the owners putting in some of their own money, because it shows commitment.

If you are refused

Ask for the reasons. Fix the cause, whether it is weak records, an unpaid tax or too little security, and apply again when you can show improvement. A refusal is information, not the end.

Good records, a clear purpose and a realistic repayment plan make the biggest difference. Start preparing months before you need the money, and keep your tax filings and statements up to date so the application is simply a matter of assembling what you already have.

Keep your tax affairs clean

Lenders often check your tax compliance before anything else. File every return on time, pay what is due and keep your certificate current. A business with an outstanding tax debt or a string of late returns looks like a risk, however strong its sales. Clear arrears before you apply, and keep proof of payment in your application file so you can show it when asked.