A matatu operator wants a second vehicle. A printer needs a machine that can handle larger runs. A contractor is losing bids because she keeps hiring the excavator her competitors own. In each case the business faces the same question: save until you can pay cash, or finance the asset now and pay over time? There is no universal answer, but there is a clear way to think about it, and it has less to do with interest rates than most people assume.
The instinct is to compare the cash price against the total financed cost, notice that financing is more expensive, and conclude that paying cash is obviously better. That comparison leaves out the most important variable: what the asset produces while you are waiting. If a machine generates an extra KES 80,000 a month in gross profit, then every month spent saving for it is a month you forgo that KES 80,000. Save for fourteen months and you have given up considerably more than the financing would have cost over the same period. The logic holds in reverse too. If the asset earns modestly, or only in certain seasons, or if you are not yet sure the demand is there, the cost of waiting is low and paying cash later is genuinely the cheaper path. So the first question is not whether you can afford the repayments. It is what the asset actually earns, and how confident you are in that number.
From there, three tests will usually settle it. The first: does the asset pay for its own financing? Compare the additional monthly profit the asset generates against the monthly repayment. If profit comfortably exceeds the repayment, the asset is self-funding and contributing on top. If the two numbers are close, you are taking on risk with little margin for error. If the repayment exceeds the profit, the asset needs to be subsidised by the rest of your business, which may still be a valid decision but is a very different one.
The second test: would paying cash leave you thin? This is where many businesses get caught. An operator drains the reserves to buy a lorry outright, avoids all financing costs, and then cannot cover an unexpected repair, a slow month, or a supplier who wants payment upfront. Owning an asset free and clear is worth something. Being unable to operate it because you have no working capital is worth considerably less. If buying outright takes your cash buffer below what the business needs to breathe, financing is often the more conservative choice, not the riskier one.
The third test: how long is the asset's useful life relative to the repayment period? An asset that will earn for eight years can comfortably carry a three-year repayment. An asset that will be worn out or obsolete in two years should not be financed over three, because you would still be paying for something that has stopped producing. Match the term to the life of the thing. This sounds obvious and is routinely ignored.
In a typical asset finance arrangement, the asset itself serves as the primary security, usually through joint registration on the logbook or a chattel mortgage. That matters for a Kenyan MSME, because it means you may not need to pledge land, a home, or other collateral you have spent years accumulating. You will normally contribute a deposit, commonly between 10% and 30% of the asset value, and insure the asset for the duration of the facility. Before signing anything, get clear answers on the total cost of the facility rather than just the headline rate, the deposit and any arrangement or valuation costs on top, what happens if you settle early, the process if you miss a payment, and exactly what security is released when you finish paying. A lender who answers these directly and in writing is a lender worth dealing with.
The short version: finance the asset when it earns meaningfully more than it costs to finance, when paying cash would leave your operations exposed, and when the asset will outlast the repayment term by a comfortable margin. Pay cash when the asset earns modestly, when you have reserves you genuinely do not need elsewhere, or when you are still testing whether the demand is real. And if you are unsure which side you fall on, that uncertainty is useful information, because it usually means the earnings estimate needs more work before the financing question can be answered at all. At Tip-Point Capital, our asset financing covers commercial motor vehicles, specialized machinery, medical and healthcare equipment and industrial hardware, with repayment terms designed to correlate with the asset's own cash generation timelines. Talk to us about working through the numbers.
