Should I take a Sh4 million loan to invest in matatu business?

My name is David. I work in Kenya but my family lives in Dar es Salaam. I earn a net of Sh116,504. Last year I took a loan of Sh3 million and bought a Nissan Civilian and started a daladala (matatu) business in Dar es Salaam. The business was shaky at the beginning but now it has stabilised. In a good month I get Sh80,000 and in a bad month Sh50,000. My business account has Sh250,000. This positive performance has convinced me to buy another Nissan civilian for Sh3 million by next April. My loan balance now stands at 2.9 million. Here are my expenses: Loan repayment (check-off) Sh58,004; rent Sh9,000; spousal support Sh7,000; transport Sh12,000 (visiting my family); university fee for my brother 15,000 (finishing university studies in September 2023), entertainment Sh1,500; airtime Sh2,500; parents Sh1,500; food Sh10,000. Would it be workable to save from the business and pay a lump sum of Sh500,000 to the bank to reduce the principal loan balance by July so that by next year my loan balance is around Sh2 million and go for a top up of Sh4 million? Is this realistic? What alternative can I use to achieve my goal faster?

Inziani Khasiani, financial consultant and the Executive Director at Klientele Kenya

Your average earning from the business is Sh65,000. The total outflows using the expenses provided for the period up September 2023 will be Sh116,500. Thereafter the expenses fall to Sh101,500. For the period up to September 2023, you have a surplus of Sh64,500 and thereafter, the surplus increases to Sh79,500.

The loan balance is given at Sh2.9 million with monthly repayment of Sh58,000 per month. If the loan is repaid at the current rate, it will be fully redeemed in March 2027. It is recommended that you work on a programme to increase the loan repayment and be eligible for top up and/or a new loan. For the period up to September, you should commit not less than Sh123,000 [Sh58,000 plus Sh65,000] towards loan repayment.

For the period after September, you should commit not less than Sh138,000 [Sh58,000 plus Sh80,000] towards loan repayment. Diligently repaying the loan at higher figures of Sh123,000 and Sh138,000 respectively will fully redeem the loan in October 2024.

It is further recommended that any additional headroom in the earning in the period be channeled to the Business account that has an initial balance of Sh250,000. Assuming, you commit Sh15,000 into this account, it will have a balance of Sh460,000 in April 2024.

The loan balance at this time will be Sh950,000. You should negotiate with your bank for a new loan [instead of top up] with the old loan balance being offset within the new loan approved and the balance can be invested in an additional vehicle. The matatus business is hands on and you need to have a serious conversation on their management as you invest in additional units.

The management of your matatus will determine your success or failure and whether the projections set are achieved going forward.