When we think about the backbone of Kenya’s economy, small businesses are often at the top of the list. From retail shops to small-scale manufacturers in industrial estates and mid-sized agribusinesses, these firms are everywhere, creating jobs and supporting the livelihoods of millions.
Yet, despite their importance, the road to accessing capital remains full of hurdles for many small business owners.
I've seen first-hand how traditional funding options leave a gap that most small businesses can't fill - whether it's due to cost, inaccessibility or a mismatch with their needs.
Banks, due to regulatory requirements, are risk-averse and often secure loans with collateral beyond the reach of most entrepreneurs.
On the other hand, venture capital and private equity are reserved for high-growth business models, primarily targeting tech startups with high margins.
So, what are the options for the everyday business owner — such as those in local manufacturing, service sectors, or growing agribusinesses — who need capital to get to the next level?
Most small businesses in Kenya don’t need—and shouldn’t pursue—venture capital, as their business models don’t match the high-growth expectations associated with equity investments.
In fact, many Kenyan entrepreneurs are hesitant to adopt the "grow at all costs" mentality required by equity investors. What these businesses need is financing that is flexible, fair, and tailored to their growth trajectory.
One alternative that meets these needs is revenue-based financing (RBF). RBF is designed to align with the realities of running a business, offering flexibility that traditional term loans often don’t provide.
Unlike fixed monthly repayments, RBF allows businesses to repay a percentage of their revenue until the loan is repaid. This structure protects cash flow, as businesses make larger payments during profitable periods and smaller ones when revenue dips.
This model is particularly well-suited for enterprises in sectors such as retail, agribusiness, or manufacturing, where revenues fluctuate seasonally or due to market conditions.
RBF allows businesses to reinvest profits in growth and innovation without the constant pressure of fixed loan payments.
For many businesses in Kenya, accessing a loan boils down to a single question: collateral. Most banks require land or large assets as security, which many small business owners simply don’t have.
Even if they do, it often falls short of what’s required for the capital they seek.
This is where RBF proves valuable once again. It allows businesses to reinvest profits while providing liquidity to investors, whose capital isn't tied up long-term, waiting for a large exit.
The flexibility of this model ensures businesses can grow at a sustainable pace, making this model a win-win for both parties.
Investors must embrace more flexible funding structures that account for realities of running a business in Kenya.
Through patient capital, flexible repayment schedules, and shared risk, investors can create a mutually beneficial relationship that fosters long-term growth.
Flexibility and patience Investors looking at small businesses in Kenya need to understand that not every enterprise is a tech unicorn or high-growth venture.
Many successful businesses are traditional, service-based operations, mid-sized manufacturers, or family-owned ventures.
These businesses don’t need complicated financial structures that demand rapid scalability; they need financial partners who understand their growth potential and unique challenges.
Take, for example, a local manufacturer of cooking stoves in Nakuru. Their business is stable, with consistent demand for their products, but to grow their capacity and extend distribution, they need time.
Growing too fast can stretch cash flow thin and kill a business. Flexible financing gives them the breathing room to reinvest profits, grow their team, market their products, and acquire the machinery they need—without the unrealistic expectation of set monthly payments during unpredictable times.
Beyond funding: Peer learning and entrepreneurial networks While capital is essential, there's another element that's often overlooked—peer learning and community support.
Many small business owners benefit from connecting with other entrepreneurs facing similar challenges. This interaction fosters knowledge-sharing, problem-solving, and strategic collaboration.
At Kua Ventures, we’ve seen the value of bringing entrepreneurs together in peer-led meetups, where the discussion is guided by the entrepreneurs themselves.
These gatherings allow founders to share experiences, learn from one another, and even form partnerships that further drive growth. For many, these sessions provide insights that no amount of capital alone can offer.
For investors, facilitating these peer networks reduces risk by building a stronger, more informed community of entrepreneurs.
The value of mentorship, shared learning, and collaboration cannot be understated, as they directly contribute to business resilience and growth.
The way forward Kenya’s economy is ripe with potential, and the opportunity for small businesses to thrive is vast. However, these businesses don’t need a one-size-fits-all solution.
They need patient capital that acknowledges their unique needs and the time it takes to grow sustainably.
For small business owners, this is a call to explore partnerships that go beyond just providing capital. Seek out investors who are interested in your success and who understand the intricacies of your industry.
Ultimately, supporting small and mid-sized enterprises benefits everyone. Thriving businesses create jobs, strengthen local economies, and contribute to a more inclusive and resilient economic future.
The success of Kenya’s economy depends on how well we support the entrepreneurs building it today.
→The author is the Executive Director at Kua Ventures. [email protected]
