Knowing your financial capacity vs your debt capacity
Opinion
By
James Mungai
| Sep 15, 2026
Every week I sit across from a business owner holding an approval letter and a smile, convinced the hard part is over. The bank has said yes.
The limit is generous. In their mind, the money is already working. What most of them have not done is ask a second, harder question: not "what can I borrow", but "what can my business actually carry"?
Those two numbers are rarely the same, and the gap between them is where most SME failures in Kenya quietly begin.
Borrowing capacity is what a lender is willing to give you. It is built on collateral, on the value of the land title or the logbook, on a credit reference bureau (CRB) score, and on how the numbers on your financial statements look at the time of assessment.
A bank asks one question above all others: If this goes wrong, can we recover our money? Once your security covers the exposure, the facility gets approved, and the limit on that letter has very little to do with whether your business can actually service it.
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Debt capacity is a different question entirely. It is what your cash flow can absorb without breaking the business that is supposed to repay it.
It asks how much of your monthly revenue is already spoken for, how seasonal your income is, what happens in the three slow months every trader in this country knows well, and whether a new repayment obligation still leaves enough to pay staff, restock and keep the lights on.
A bank rarely asks this question with any real rigour. It is not their job to ask it. It is yours.
I have seen this gap sink hardworking traders more times than I can count. A transporter with three trucks and clean logbooks gets approved for an asset-backed loan of Sh8 million to buy two more units.
The security is solid, so the bank moves fast. Nobody sits down and asks whether five trucks generate enough net cash, after fuel, drivers, maintenance and the existing loan, to service the new instalment during the quiet months between contracts.
Six months later, the trucks are still running, the business is still profitable on paper, and the account is still in arrears, because profit on paper and cash in the account are not the same thing.
Corporates fall into a version of the same trap, just at a bigger scale and with more sophisticated language around it.
A company with strong revenue and a healthy balance sheet can raise significant debt because lenders read strength into the numbers.
What that balance sheet does not always show is the timing mismatch between when revenue actually lands and when the debt service is due.
A firm can be genuinely creditworthy and still be cash poor at exactly the wrong moment, and Kenyan payment culture, where receivables of 90 and 120 days are treated as normal, makes this mismatch far more common here than the textbooks admit.
The instinct to blame the bank for over-lending is understandable but misplaced. Lenders assess borrowing capacity because that is genuinely their risk to manage.
Debt capacity is your risk to manage, and nobody else is positioned to do it properly, because nobody else sees your real cost structure, your real collection cycle, or your real seasonal dips the way you do.
Before taking on any facility, run your own honest test. Strip out the optimism and the sales projections you told the bank to win the approval.
Look at your actual average monthly cash position over the worst three months of the last two years, not the best three.
Ask whether the new instalment survives that worst case comfortably, not just on a good month. If it does not, the size of your approved limit is irrelevant. You are not looking at capacity. You are looking at exposure wearing the costume of opportunity.
The businesses that survive Kenya's credit cycles are rarely the ones that borrowed the most. They are the ones that understood, long before the bank did, exactly how much debt their cash flow could actually carry.
-The writer is a Certified Public Accountant and founder of Marathon Debt Recovery Ltd