Preparing a small business loan application in Uganda
What a development lender asks for: registration papers, twelve months of statements, a credit report, tax clearance and projections. How to be ready.
Most small business owners in Uganda meet a lender's checklist for the first time on the day they need the money. That is the worst day to discover that the business has no bank statement in its own name and the last tax return was never filed. The checklists are public, and they are remarkably consistent. This post uses Uganda Development Bank's published requirements as the benchmark, because a business that can satisfy a development lender can satisfy most commercial ones too.
Who the development lender will talk to
Uganda Development Bank (UDB) says that "every Ugandan registered business enterprise engaged in an existing or start-up business qualifies" if it operates in one of its priority sectors, and that "applicants must be incorporated entities, Co-operatives, or registered farmer groups". Its sectors are agriculture through to agro-processing, tourism and hospitality, manufacturing, human capital (health and education) and infrastructure including ICT. It offers "term loans with varied tenors of up to 15 years" alongside asset finance, trade finance and dedicated SME, women's and youth programmes. It does not do retail banking.
The first filter is therefore legal form. A sole trader's business name will not do for UDB's mainstream facilities; a company, co-operative or registered group will.
The documents, and what they really test
UDB's credit checklist for mainstream facilities is long, but it groups into five tests.
Is the business real? A "Customer Facility Application Letter (on official company letter head)", the "resolution to borrow, articles & memorandum of association, certificate of incorporation", trading and operating licences, and "Profiles of Directors & key technical personnel".
Does it keep books? Past audited or draft accounts from an ICPAU-listed firm where applicable, a "Bank statement for the last twelve months", statements for any existing loans, and "Cashflow projections and projected financial statements (Income Statement, Balance Sheet)", which the bank notes are required for existing businesses and start-ups alike. For its special programmes it accepts "Bank/Mobile Money/SACCO statements, etc. for 12 months".
Is it compliant? A "Tax Clearance Certificate", "Proof of NSSF compliance (where applicable)", and "PAYE records in some cases".
Can the owners be trusted with credit? A "Credit Reference Bureau Report of the company & all its shareholders/directors", with registration at UGX 13,000 "for each promoter and enterprise" if not already done.
Is the loan secured and costed? "Security for the proposed loan, including current valuations of the assets and any encumbrances", quotations from suppliers for what the money will buy, and "proof of payment of appraisal fees", which UDB puts at "0.5% or 0.75% of the amount applied for".
Read that list again and notice that almost none of it can be produced in a week. Twelve months of statements take twelve months. A tax clearance certificate needs returns filed on time; URA's monthly returns are due on "the 15th day of the month following the return period" and the annual return "within six (6) months from the end of the financial period". The lender is not testing your paperwork. It is testing whether you have been running the business properly for a year.
The twelve-month preparation
If you expect to borrow within a year, start now:
- Separate the money. Open an account in the business's name and route all takings through it, including mobile money. A statement with personal school fees in it is a statement a credit officer will discount.
- File every return on time. Even a nil return. The clearance certificate at the end depends on it.
- Pay NSSF if you have staff. It is on the list.
- Keep the books monthly, not annually. A lender wants to see a P&L and a balance sheet that agree with the bank statement. If those exist every month, the audited or draft accounts at year end are a formality.
- Build the projection from the sales history. A cash flow forecast is credible when it starts from last year's actual monthly sales and explains what the loan changes.
- Know your own credit record. Get the bureau report before the lender does.
What the loan should buy
Lenders fund things that produce the repayment: stock for a confirmed contract, a machine that raises output, a second outlet with a lease signed. UDB asks for a "Budget Breakdown of amount applied for accompanied with quotations from suppliers" and, for construction, "an approved plan and BOQ". Vague working capital is the hardest request to approve. Tie the amount to quotations and to a line in the projection.
Where Kit fits
Kit Accounting is free in every Kit plan, and "every sale, purchase and payment posts to the ledger", giving a "P&L, balance sheet, trial balance and ageing, live". That is test two on the checklist, kept automatically. Kit POS reports add the sales history by day, product and customer that a projection should be built on, and every report exports to Excel and CSV, which is the format a credit officer wants. Kit Business on the phone shows the owner today's sales and cash every day, so the figures in the application are figures you already know.
The short version
A loan application is twelve months of discipline summarised in a file. Start the file today, and the day you need the money will be a day you are ready for.
Sources
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