UK lender faced request for $5 million from Lipa Later just two weeks after it entered administration
Kenyan Buy-Now-Pay-Later Startup Lipa Later Seeks $5 Million Loan Amid Financial Struggles
In a bid to stabilize its operations, Kenyan buy-now-pay-later startup Lipa Later sought a $5 million loan from Advanced Global Capital (AGC) in April 2024, shortly after entering administration in March under the control of administrator Joy Vipinchandra Bhatt of Moore JVB Consulting LLP.
The proposed loan, with a 36-month term, carried a steep 14% annual interest rate, with interest-only payments for the first 24 months, and quarterly repayments starting from the 27th month. The funds were intended to support Lipa Later’s invoice factoring business.
However, it is unclear whether the administrator authorized or was even aware of this financing attempt. Under Kenyan insolvency law, the company’s directors had lost management powers once administration began.
The loan proposal placed stringent requirements on cash flow management, security provisions, and restricted the company from incurring other debts without AGC’s approval. All loan disbursements, repayments, and unused funds for the proposed facility were to be managed through dedicated collection bank accounts that were internet-banking-enabled and had AGC as a co-signatory with full rights to instruct the bank.
Prior to the loan request, control of Lipa Later had already passed from its co-founder Eric Muli to the court-appointed administrator Joy Vipinchandra Bhatt by late March 2024. The startup, which was founded in 2018, had raised a total of $16.6 million across 10 rounds, including $12 million in seed funding in January 2022.
The company's financial distress had been mounting, with unpaid salaries and defaulted supplier payments. The acquisition of Sky.Garden, a struggling e-commerce platform, for KES 250 million ($1.9 million) in December 2023 raised eyebrows, as Lipa Later was already facing financial difficulties.
Invoice factoring, where a company advances cash against future receivables, is less risky than consumer lending and offers faster turnaround. This method could have provided a lifeline for Lipa Later, but the stringent conditions attached to the proposed loan may have made it difficult for the startup to meet them.
As of now, it remains uncertain whether the loan was finalized or authorized by the administrator, and the future of Lipa Later hangs in the balance. The administrator, Joy Vipinchandra Bhatt, did not respond to requests for comment.
[1] Source: Advanced Global Capital proposal document [2] Source: Kenyan Insolvency Act, 2015 and correspondence with Lipa Later administrator
- The Kenyan buy-now-pay-later startup Lipa Later sought a $5 million loan from Advanced Global Capital (AGC) to support its invoice factoring business, signaling potential investments in the finance sector for startups facing financial struggles.
- Despite the loan proposal carrying stringent requirements, including interest-only payments for the first 24 months and restrictions on incurring other debts without AGC's approval, such investments could offer a lifeline for finically distressed businesses seeking to stabilize their operations.
- The proposed loan, with its complex terms and conditions, raises questions about the balance between investment and business sustainability, especially for startups navigating challenging economic environments.
