“You can never find me lining up in a bank to take a loan. I would rather go to a Sacco, “were Gakii’s words when asked how she planned on funding her fish outlet business idea. Ideally, both banks and Sacco are good debt options.
Debt has become hard to avoid especially when starting a new business venture, and more and more people are running to financial institutions to fund their businesses. Two options that are seemingly popular are bank loans and Sacco loans.
Why choose one and leave the other?
- Sacco’s loans have become more easily accessible than bank loans. Bank loans have difficult appraisal requirements and sometimes you may lack the needed documentation.
- When you compare the interest rate between banks and SACCOs, Bank rates are usually higher than SACCOs rates. While Saccos give loans on reducing balance, banks give loans on a straight-line basis.
- Banks offer long repayment periods as compared to SACCOs, which give short periods of repayment.
- Saccos give loans according to your savings whilst banks can loan you huge sums.
- With SACCOs, you can have more than one loan at the same time whereas, with banks, your only option is to top up your existing loan.
- Whether you’re employed or not a Sacco can give you a loan if you prove your ability to repay it. In most banks, you will have to present your current payslips.
- If you’re listed in the CRB forget about getting a bank loan. However, you can still access a loan through Sacco.
- Whenever there are economic fluctuations, a bank can adjust the interest without informing the lender. This is not true for SACCOs.
- Saccos don’t have hidden charges but banks do. These are charges like insurance fees, appraisal fees, and legal fees that are deducted from the approved amount.
- Unlike banks, SACCOs give their members dividends. This money could be used toward your loan repayment.
- When you join a Sacco, you can only access your money when borrowing a loan or when leaving the Sacco completely. With banks, you can access your money at any time.
- Banks don’t require you to pay a share capital. Share capital is the amount you put to buy shares in a SACCO. This amount is non – refundable even when exiting the SACCO. Share capital varies from SACCO to SACCO.
- Unlike banks, SACCOs are more accommodating when it comes to repayments plans. They are less likely to call the hounds on you.
- Saccos offer additional benefits, for example a SACCO can source land cheaply and sell it to its members at an affordable price. This is something not common in banks.
We are facing unpredictable times and are not sure what tomorrow offers. Keeping this in mind when choosing what debt to take up may save your business from the harsh reality like high interest loans and in worse scenarios, receivership.
Sources: Kussco, The East African, Kenya Yote, Trending Kenya, Khasakh, Mwalimu National
