Many Kenyan small and medium-sized enterprises (SMEs) fail not because they cannot borrow money, but because they misunderstand their debt capacity versus their borrowing capacity.

• Borrowing capacity is determined by lenders based on collateral and financial statements, focusing on loan recovery if things go wrong.
• Debt capacity is the amount of debt a business's cash flow can sustain without jeopardizing its operations, a calculation business owners must perform themselves.
• The gap between these two figures, often overlooked, is a primary cause of business failures, even for those with strong revenue or approved loans.