If you’ve taken a business loan recently or you’re planning to, you may have noticed something that doesn’t quite add up at first glance.

The Central Bank Rate (CBR) is sitting at 8.75%, yet most SMEs are borrowing at around 14–19%.

Naturally, the question comes up: where does the extra cost come from?

The answer is that banks don’t price loans using the CBR alone. There is a structure behind it, and once you understand it, the numbers start to make sense.

The Structure Behind Your Interest Rate.

Every loan is built from two main components.

The first is the base rate, which reflects the general cost of money in the economy. This is influenced by benchmarks like the Central Bank Rate and increasingly by market rates such as KESONIA.

The second is the risk premium, which is specific to your business.

This is where things become very practical. Two businesses can borrow from the same bank on the same day, but end up with completely different interest rates not because of the bank, but because of how each business is assessed.

In simple terms, the base rate is about the market. The risk premium is about you.

Where KESONIA Fits In.

In 2026, more banks are leaning heavily on KESONIA (Kenya Shilling Overnight Interbank Average) as a reference point for pricing loans.

KESONIA reflects how banks are lending to each other on a daily basis, so it gives a more real-time view of the cost of money in the system.

What this means in practice is that many loans are no longer fixed in a traditional sense. Instead, they move with the market.

So when liquidity in the system changes, your interest rate can also adjust.

It is more transparent than before but also more dynamic, which means borrowers need to pay closer attention.

Why Your Loan Ends Up Around 14–19%.

If you break it down simply, a typical SME loan today looks something like this:

A base rate of around 8.75%, plus a risk premium of about 5–10%.

That is how you land at an average of roughly 17.3%.

Now, the important part here is this: the base rate is fixed by the market. You don’t negotiate it.

But the risk premium is where your business tells its story.

And banks are listening to that story through data only!

How Banks Are Actually Reading Your Business.

From what I see in practice, banks are becoming less emotional and more data-driven in how they assess risk.

They are looking at:

• Whether your cash flow is consistent or erratic.
• How active and structured your account behavior is.
• Your repayment discipline over time.
• The collateral you`re giving.
• Your annual turnover.

It’s less about how long you’ve known the bank, and more about what your numbers are saying today.

That shift is subtle, but very real.

What This Means for You as a Business Owner.

One thing I always tell SMEs is this: you cannot control the base rate, but you can absolutely influence how the bank sees your risk.

And that is where many businesses miss an opportunity.

They focus on getting credit approval, but not on how they are priced after approval.

Yet over time, that pricing is what determines how expensive or sustainable your growth becomes.

What You Can Do Differently.

From experience working with SMEs, a few simple habits make a real difference:

Keep your financial records clean and consistent not just for compliance, but for credibility.

Let your bank account reflect the real movement of your business. Irregular patterns create uncertainty.

Consolidate your bankings to few banks.

Your CRB score has a big influence. I will speak about this next time.

And perhaps most importantly, don’t wait until you need a loan to engage your banker. That conversation is more powerful when it is ongoing, not urgent.

These are not complicated steps, but they quietly shape how your business is priced.

Final Thought.

The lending environment in 2026 is not random. It is structured, data-driven, and increasingly transparent.

But it also rewards businesses that understand how to position themselves.

In many cases, the difference between a high rate and a fair rate is not the market it is the risk profile being presented.

And that is something within your control.

If you’re running a business, the real question is not just “Can I get financing?”
It is also “How am I being priced when I get it?”

That small shift in thinking changes everything.

You might be paying a higher interest rate than your business actually deserves.

Let’s review your loan, understand your risk profile, and see where you can negotiate better terms.

Reach out if you’re ready to stop guessing and start making informed financial decisions.