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These are the WORST of times to be taking loans to finance your inventory purchase.
We’re currently navigating an exceptionally challenging economic landscape. Soaring credit costs, sky-high interest rates, and the crippling burden of deadstock make this the worst possible time to finance inventory purchases with loans. The implications of relying on loans for inventory are profound and far-reaching, especially in fiercely competitive markets where dead-inventory rates are at 30%.
You’ll NOT be surprised to learn that the cost of credit has reached unsustainable levels. KCB Bank Group just raised its base lending rate from 14.7% to 15.6% (and its one of the cheaper options among major banks). Co-operative Bank of Kenya raised its rate to 16.5%, Equity Bank Limited charges up to 24.7% for risky borrowers, and NCBA Group is at 17.5%. (Read more here)
We won’t even discuss those leg breakers with mobile lending apps.
Let’s picture a scenario where I lend you KES 100,000 for a month, with the agreement that you will repay me KES 109,000 at the end of that period. You promptly use the borrowed money to procure some inventory, however, you encounter a disastrous situation — you are unable to sell your inventory throughout the entire month. Consequently, you resort to using your own personal savings to repay me the promised KES 109,000. What just happened?Well, you took my money, stashed it under a mattress, then forked out the interest from your own savings. This unfortunate circumstance is a shared experience among millions of businesses, inclusive of electronics retailers, fashion and apparel enterprises, automotive spare parts businesses, and Mali Mali traders, among many others.
To put it simply, inventory finance is only beneficial if you can promptly sell your stock to repay the loan and its associated interest. If a business finds itself in the unfortunate position of having excess stock even for a single day beyond the acceptable threshold, it will experience financial loss for each day the loan and interest remain unpaid.
This risk may have been tolerable if it were rare or even occassional. The problem is that for Slow Moving Consumer Goods market segments, it’s extremely common. Predictably, because a large portion of the 600 million MSMEs across Africa are isolated, we all lack complete insights — either historical or real-time — on the occurrence or categories of dead inventory. Add to the presence of costly, readily available credit and the problem grows ten-fold. I personally know almost a hundred businesses that moved all their inventory to their home just to avoid the overhead of unsold inventory.
Clearly, in crowded markets where deadstock is all too common, your business MUST rely on better ways of acquiring inventory than loans.
The recent finance bill 2024 is keen on introducing new taxes that will further exacerbate the financial strain on small businesses. The bill proposes a 16% VAT on all banking transactions, including loans, and an increase in excise duty on money transfer fees from 15% to 20%. If passed, these additional costs will be passed on to customers, (which in this case are all businesses) further increasing the cost of credit and intensifying the associated deadstock risk.
For many small businesses, taking out a loan to purchase inventory can lead to a vicious cycle of debt. High interest rates and overhead costs reduce profitability, making it difficult to repay loans. As businesses struggle to manage their debt, they may take out additional loans to cover expenses, perpetuating a cycle of financial instability. This scenario is particularly dire here, where SMEs constitute up to 90% of all businesses and face a $300 billion credit gap. The negative impact of surplus, unproductive deadstock is immense, and relying on loans to finance inventory only exacerbates the problem.
There’s plenty of deadstock in different regions of the country that is in high demand in your locale. We’re bringing these products close to you & providing you with the requisite data to help improve your odds of selling.
This is how it works.
If you’re a business tired of hoarding products you cannot sell, we have plenty of enterprises that are willing & able to sell your unsold stock. On the other hand, if you’re a business person tired of the financial strain caused by high-interest inventory loans, it’s time to our service.
We’re here to help you navigate this process, providing the tools and insights you need to either source inventory you need or turn deadstock into a valuable asset.
