Kenya has often been termed as a “hustler nation” a term embraced by millions of farmers, traders, and entrepreneurs, and championed by the President himself. This entrepreneurial energy has fueled the rapid growth of SMEs, especially in agribusiness and trade. In response, banks and financial institutions are expanding deeper into counties to meet the demand for credit. 

In spit of this, SMEs will be well minded to bear in mind that financiers do not just lend to ideas; they lend to structured businesses. Beyond the vision or enterprise, lenders scrutinize the form, governance, and discipline of the entity seeking financing. 

Here are some key considerations every entrepreneur looking to secure funding must have in mind when it comes to structuring one’s business: 

1. Understanding Liability: Choosing the Right Structure 

As an entrepreneur, it is prudent to limit your risks. When borrowing for the business, one should not expose themselves to high risk, over- securitization or even unlimited liability.  

Below are some of the more popular business vehicles and their nature when it comes to liability: 

1. Sole Proprietorships: Simple and common, but risky. There is no separation between business and owner. If the business cannot pay, personal assets such as land, savings and vehicles may be seized. 

2. Partnerships: In general partnerships, all partners share unlimited liability. Limited Liability Partnerships (LLPs), however, shield personal property, making them safer and more attractive to borrowers as one’s liability is limited to their contribution to the firm. 

3. Companies: Private limited companies provide limited liability all while allowing flexibility with the coming into operation of one shareholder-director companies. A shareholder’s liability is limited to their shares and such vehicle therefore can ensure protection of the assets of the individual. 

What you need to know: When scaling up and seeking financing, it is wise to move from the small-scale sole proprietorship to a structure which insulates the entrepreneur from the risks that come with borrowing. Additionally, corporation have perpetual succession. This aspect is attractive to lenders as there is assured continuity even in cases where a shareholder may be incapacitated. 

2. Issuance of Guarantees 

Even with limited liability, banks frequently require guarantees to safeguard loans. A guarantee is a legal commitment by a third party to step in if the borrower defaults. 

1. Personal Guarantees: An individual (often a director) promises to repay in case of default. 

2. Corporate Guarantees: A company agrees to cover liabilities of another entity, subject to shareholder approval. 

3. Limited vs. Unlimited Guarantees: Limited guarantees cap exposure to a specified amount. Unlimited guarantees cover the entire debt, plus interest and costs. 

Under Kenya’s Law of Contract Act (Cap 23), all guarantees must be in writing and signed by the guarantor. Courts have affirmed that once default occurs and notice is issued, a guarantor’s liability takes effect immediately, the lender is not obligated to first pursue the borrower. 

What you need to know: Guarantees are binding. Before signing, understand the scope of your liability, assess the borrower’s repayment ability, and seek legal advice where necessary. Additionally, use estate planning tools such as family trusts to protect sentimental or personal assets from the lender’s hands. You can read more on how trust work here (https://cmadvocates.com/blog/the-process-of-setting-up-a-family-trust/). 

3. Corporate Governance and Records 

Strong governance is a hallmark of a credible borrower. Banks want assurance that a business is not only profitable but also transparent and compliant. 

What lenders expect to see: 

1. Proper Accounting Records: Professionally prepared, preferably audited accounts which are prepared in line with the international financial reporting standards. 

2. Statutory Compliance: The underlying law of must be complied with alongside other relevant laws. An entity required to make regular filings must be compliant and be in adherence to all laws governing its operations. The most common pitfalls usually include failure to file tax returns, remit employee statutory deductions or procure the relevant licenses or permits. 

What you need to know: Proper records are one of the primary ways of exhibiting a business’ corporate governance framework thereby inspiring trust and confidence from lenders and other investors.  

Conclusion 

As banks extend their footprint to counties, access to finance is improving for Kenyan SMEs. Other players have also been seen reaching out to small businesses including the national and county governments as well as private equity firms. Proper structuring attracts not just bank credit, but also equity, partnerships, and strategic investors. To be well positioned for this, access alone is not enough- the real key lies in preparation.  

By choosing the right legal structure, managing guarantees wisely, maintaining transparent governance, and building credibility through disciplined financial management, entrepreneurs can unlock not just funding, but ensure sustainable growth market and investor confidence. 

Your business structure is your foundation. Build it well, and financing will not only follow, it will multiply your opportunities. 

HOW WE CAN HELP 

At CM-SME Club, our team guides SMEs and entrepreneurs in structuring and restructuring their businesses to unlock financing opportunities. From incorporation and governance frameworks, to drafting shareholder agreements and ensuring regulatory compliance, we will advise you on optimally structuring your business for growth. 

Whether you are just starting out, scaling into new markets, or preparing to attract investors, our team ensures your business is positioned not only to access financing but also to thrive sustainably. Visit our website at cmsmeclub.com or reach out to our contact our contributors. 

Contributors:

Brian Thuranira

Victorine Rotich

Published on Nov. 14, 2025, 5 p.m.