You have finally struggled enough to get a tender or the word out of your new business product and have finally secured an LPO. You get really excited and send the word out to all your friends you talk to supports and maybe even family for support.
This may not be enough and other sources of income financing may have to be checked. These include banks, Capital ventures and crowdfunding among others.
What is an LPO?
A Local purchase Order LPO is a document sent by the supplier to a vendor authorizing the shipment of a particular product to the customer at specific price and terms. This document once given out cannot be changed as is a legally binding contract that unless the two involved parties agree to do so.
LPO financing is designed for businesses that do not have enough working capital or cash. The best advantages of LPO financing is that you do not need to have any form of security in form of Physical assets that other loans may require.
Recently banks have been on the rise to finance LPOs. Banks like KCB, National Bank and Diamond Trust Bank among others. Most banks can finance LPOs from 10,000.00 to around 5,000,000.00. This though might come with an interest of up to 15%. Bank loans, however, may have restrictions and eligibility criteria such as having run an account with them for about 6 months and having a
good credit history something many small businesses may not be able to meet.
Below is a sample of the requirements a bank may require before an LPO financing is offered from a Local Bank
- Valid LPO from the government ministry or Parastatal, a reputable (blue chip) company, listed NGOs or KCB List of Corporate companies.
- Pro-forma invoice or quotation of items of purchase from the supplier
- Bank statements for the last 6 months (for non-customers)
- Copy of proposed collateral for borrowings above Kshs. 1,000,000
- Valid business registration and permit documents
- Valuation report where applicable
- Audited accounts for amounts above 5.0 M
- List of past contracts completed – dates, amounts, etc
- Debtor/creditor duly aged analysis
- Rates and Fees
- 3% negotiation fees on the financed amount
Apart from banks, other microfinance institutions can also offer business loans that you can use to finance an LPO. The Kenya Women Finance Trust and Faulu Kenya are a good example of institutions that can offer loans in case you are a member and have shares in them.
As a business however you might not be in a position to apply for one unless you are operating as a sole proprietor. This is because a sole proprietor is the sole decision maker and do not need any consultation when making decisions. A sole proprietor is also affected directly by their actions in business thus will be more accountable for such an action. Women and the youth are also encouraged to get loans from these institutions as they are geared to helping such groups.
Institutions such as The Youth Enterprise Development Fund (YEDF) and Indo Africa finance with the indo-biashara loan product offer loans for LPO financing. This might take time to process but do not require any form of security.
You might also want to consider getting financing from shylocks or sharks. These might charge you interest of 15% a month. You should ensure to calculate the amount of the interest you will accumulate against the profit you will get especially if you will be paid after 90 days to know exactly what amount you will remain with. Sharks may be quite expensive and involving them in your
business may result in you receiving very little or no profit at all.
Invoice factoring may as well be your ultimate solution to all your LPO financing needs. At Momentum Credit we offer up to 85% the value of an invoice and give cash in fewer than 24 hours. You also do not need to open an account with us and also fill a lot of paperwork either. Momentum credit also takes this a bit higher as they do not ask you for past credit history, or any other irrelevant information that other financial institutions require. Collateral is also not required as shares, and other physical asset securities are not required.
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