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Venture Debt Agreement (Kenya)

Venture Debt Agreement (Kenya)

VENTURE DEBT AGREEMENT

Law of Contract Act Cap. 23 | Companies Act No. 17 of 2015 | Capital Markets Act Cap. 485A

THIS VENTURE DEBT AGREEMENT is made on [Agreement Date]

BETWEEN:

(1) [Lender Name], having its registered office at [Lender Address] (the "Lender"); and

(2) [Borrower Name] (BRS Registration Number: [Borrower BRS Number]), having its registered office at [Borrower Address] (the "Borrower").

The Lender and the Borrower are collectively referred to as the "Parties" and individually as a "Party".

RECITALS

A. The Borrower is a high-growth company incorporated under the Companies Act No. 17 of 2015 and has received institutional equity investment from venture capital investors.

B. The Lender is in the business of providing venture debt financing to growth-stage technology and innovation companies in Kenya and the East African region.

C. The Borrower wishes to borrow and the Lender wishes to lend the Facility Amount on the terms and conditions set out in this Agreement, which is governed by the Law of Contract Act Cap. 23.

D. As part of the consideration for the Facility, the Borrower agrees to issue to the Lender warrants to subscribe for shares in the Borrower on the terms set out herein.

1. THE FACILITY

1.1 Subject to the terms and conditions of this Agreement, the Lender agrees to make available to the Borrower a venture debt facility of [Facility Amount] (the "Facility").

1.2 Tranche structure: [Tranche Structure]. [Tranche Details].

1.3 Availability period: [Availability Period]. Any undrawn amounts after the availability period shall be automatically cancelled.

1.4 Purpose: The Borrower shall apply the proceeds of the Facility exclusively for [Loan Purpose]. The Borrower shall not use Facility proceeds to repay any shareholder loans or distribute dividends without the Lender's prior written consent.

1.5 The Facility is a term loan and amounts repaid or prepaid may not be re-borrowed, unless the Agreement expressly provides for a revolving structure.

2. INTEREST AND REPAYMENT

2.1 Interest rate: [Interest Rate] per annum, calculated on the daily outstanding principal balance on an actual/365 basis.

2.2 Interest payment: [Interest Type].

2.3 Interest-only period: [Interest Only Period]. During this period, the Borrower shall pay accrued interest only and no principal repayment is required.

2.4 Loan term: [Loan Term].

2.5 Repayment schedule: [Repayment Schedule]. All outstanding principal, accrued interest, and fees are due and payable on the maturity date.

2.6 Prepayment: [Prepayment Terms].

2.7 Default interest: Interest on overdue amounts accrues at a rate 5% per annum above the contract rate from the due date until actual payment, compounding monthly.

2.8 Withholding tax: All payments of interest under this Agreement shall be made without deduction or withholding for any taxes. If the Borrower is required by law to make such a deduction, the Borrower shall gross up the payment so that the Lender receives the full amount it would have received in the absence of withholding. Interest paid to a non-resident Lender is subject to withholding tax at 15% under Section 35 of the Income Tax Act Cap. 470, unless reduced by an applicable double taxation agreement.

3. WARRANTS

3.1 As additional consideration for the Facility, the Borrower hereby grants to the Lender warrants to subscribe for [Number Of Warrant Shares] shares in the Borrower, representing warrant coverage of [Warrant Coverage].

3.2 Strike price: [Warrant Strike Price] per share.

3.3 Exercise period: The warrants may be exercised at any time during the [Warrant Exercise Period] from the date of this Agreement by written notice from the Lender to the Borrower.

3.4 The warrant constitutes a security interest within the meaning of the Capital Markets Act Cap. 485A. The issuance of warrants is exempt from CMA public offer registration requirements as a private placement to an institutional lender.

3.5 On exercise of the warrants, the Borrower shall allot and issue the shares to the Lender within 14 days of receipt of the exercise notice and shall update the company's register of members filed with the Business Registration Service (BRS) under Section 93 of the Companies Act No. 17 of 2015.

3.6 The Borrower's board of directors has passed a resolution authorising the warrant issuance, and existing shareholders have waived or agreed to waive their pre-emption rights in accordance with the Companies Act No. 17 of 2015.

4. SECURITY

4.1 As security for all sums due under this Agreement, the Borrower shall, on or before the first drawdown, grant to the Lender the following security: [Security Package].

4.2 The Borrower shall register all charges and security interests at the Business Registration Service (BRS) within 30 days of creation under Section 863 of the Companies Act No. 17 of 2015, using the prescribed form under the Companies (Charges) Regulations 2015. Failure to register within the 30-day period renders the charge void against a liquidator and other creditors in insolvency under the Insolvency Act No. 18 of 2015.

4.3 Guarantors: [Guarantors]. All personal guarantees are personal obligations under the Law of Contract Act Cap. 23.

4.4 The Borrower shall maintain all security in force and shall not create any further security interests over the charged assets without the Lender's prior written consent.

5. COVENANTS

5.1 Financial covenants: The Borrower shall comply with the following financial covenants throughout the term of this Agreement: [Financial Covenants].

5.2 Negative covenants: Without the Lender's prior written consent, the Borrower shall not: [Negative Covenants].

5.3 Affirmative covenants: The Borrower shall at all times: (a) maintain adequate insurance cover over all material assets; (b) file all tax returns and pay all taxes due to the Kenya Revenue Authority (KRA) via the iTax platform under the Income Tax Act Cap. 470; (c) maintain its BRS registration in good standing; (d) preserve all material licences and permits; and (e) promptly notify the Lender of any material adverse change in the Borrower's financial condition, management, or business operations.

5.4 Reporting obligations: [Reporting Obligations]. All financial statements shall be prepared in accordance with International Financial Reporting Standards (IFRS) as adopted in Kenya and certified by a Certified Public Accountant registered with the Institute of Certified Public Accountants of Kenya (ICPAK).

6. EVENTS OF DEFAULT AND ENFORCEMENT

6.1 Each of the following constitutes an Event of Default: [Events Of Default].

6.2 On the occurrence of an Event of Default, the Lender may by written notice to the Borrower: (a) declare all outstanding principal, interest, fees, and other amounts immediately due and payable (acceleration); (b) appoint a receiver and manager over the Borrower's business under Section 680 of the Companies Act No. 17 of 2015; and/or (c) enforce any security interest in accordance with the applicable security documentation.

6.3 The Lender may present a winding-up petition to the High Court of Kenya under Section 425 of the Insolvency Act No. 18 of 2015 where the Borrower is unable to pay its debts as they fall due.

6.4 All remedies available to the Lender are cumulative and may be exercised concurrently or independently.

7. REPRESENTATIONS AND WARRANTIES

7.1 The Borrower represents and warrants to the Lender that, as at the date of this Agreement and each drawdown date: (a) it is duly incorporated and validly existing under the Companies Act No. 17 of 2015; (b) it has full power and authority to enter into and perform this Agreement; (c) no insolvency proceedings have been commenced or threatened against it under the Insolvency Act No. 18 of 2015; (d) it is not in material breach of any applicable law or regulation; and (e) all information provided to the Lender in connection with this Agreement is true, accurate, and not misleading.

8. GOVERNING LAW AND DISPUTE RESOLUTION

8.1 This Agreement is governed by and construed in accordance with the laws of Kenya under the Law of Contract Act Cap. 23.

8.2 Dispute resolution: [Governing Law].

8.3 Stamp duty under the Stamp Duty Act Cap. 480 is payable on this Agreement at the rate applicable to loan instruments.

IN WITNESS WHEREOF, the Parties have executed this Venture Debt Agreement on the date first written above.

Authorised Signatory (Lender)

________________

Signature

Authorised Signatory (Borrower)

________________

Signature

Witness

________________

Signature

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What Is a Venture Debt Agreement (Kenya)?

A Venture Debt Agreement in Kenya sets out the rights, duties and consideration binding the parties to it.

The Law of Contract Act Cap. 23 governs the formation, validity, and enforceability of Venture Debt Agreements in Kenya. All essential elements of a valid contract under Section 2 of Cap. 23 must be present — offer, acceptance, consideration, capacity, and legality. The Companies Act No. 17 of 2015, administered by the Business Registration Service (BRS) under the Companies (General) Regulations 2015, governs the creation and registration of debentures and charges over the assets of a Kenyan-incorporated borrower company. Security interests created in favour of the venture debt lender — whether a fixed charge over specific assets or a floating charge over the business as a whole — must be registered at the BRS within 30 days of creation under Section 863 of the Companies Act No. 17 of 2015.

The Capital Markets Authority (CMA), established under the Capital Markets Act Cap. 485A and operating under the Capital Markets (Securities) (Public Offers, Listing and Disclosures) Regulations 2002, regulates the issuance of securities by Kenyan companies. Where a Venture Debt Agreement includes a warrant component — granting the lender the right to subscribe for or purchase shares in the borrower at a predetermined price — the warrant constitutes a security interest within the meaning of the Capital Markets Act. Private warrant issuances to institutional lenders are generally exempt from CMA public offer registration requirements, but the warrant terms must comply with the Companies Act regarding pre-emption rights and the company's articles of association.

Development finance institutions active in the Kenyan venture debt market include the African Development Bank (AfDB) through its private sector window, the International Finance Corporation (IFC) — the private sector arm of the World Bank — the Development Finance Corporation (DFC) of the United States, and regional development finance institutions such as the East African Development Bank (EADB). The Kenya Private Sector Alliance (KEPSA) and the Kenya Venture Capital Association (KVCA) are industry bodies representing venture capital and growth financing participants in the Kenyan market.

Forms-legal.com provides this Kenya Venture Debt Agreement template as a starting point for growth-stage companies and their legal advisors structuring venture debt transactions in the Kenyan market, where the blend of equity-linked returns and debt security makes precise drafting critical to both lender and borrower.

The legal framework governing the Venture Debt Agreement (Kenya) in Kenya draws on several key statutes and regulatory bodies. Under the Central Bank of Kenya Act (Cap. 491), the Central Bank of Kenya (CBK) regulates banking. The Capital Markets Authority (CMA) regulates securities under the Capital Markets Act (Cap. 485A). Section 84 of the Bills of Exchange Act (Cap. 27) governs promissory notes. The Kenya Revenue Authority (KRA) administers tax obligations. The Microfinance Act No. 19 of 2006 regulates microfinance institutions. The Hire Purchase Act (Cap. 507) governs credit sale agreements. Parties executing a Venture Debt Agreement (Kenya) in Kenya should confirm the document reflects current law, including any amendments enacted since the original drafting date. The Law of Contract Act Cap. 23 sets the foundational requirements.

When Do You Need a Venture Debt Agreement (Kenya)?

A Venture Debt Agreement in Kenya is appropriate in specific financing situations that arise in the lifecycle of a high-growth company.

A Venture Debt Agreement is needed when a Series A or Series B startup requires additional capital to extend its cash runway between equity rounds without issuing new equity at a potentially lower valuation. Venture debt typically provides 20–35% of the most recent equity round raised, enabling the company to fund product development, market expansion, or hiring without the dilutive cost of a premature equity issuance.

A Venture Debt Agreement is required when a technology or fintech company regulated by the Central Bank of Kenya (CBK) or the Communications Authority of Kenya (CA) needs to fund the purchase of licensed spectrum, technology infrastructure, or software assets that generate recurring revenue but do not constitute traditional bankable collateral for commercial bank lending under the Banking Act Cap. 488.

A Venture Debt Agreement is needed when a company backed by a recognised institutional venture capital investor — such as a fund registered with the CMA or a development finance institution — seeks to use its equity investor relationships to access debt capital from a specialised venture lender who is comfortable with the company's equity story and investor backing.

A Venture Debt Agreement is appropriate when a company that has reached revenue positive but not yet profitable stages needs growth capital for working capital, inventory financing, or regional market entry across the East African Community (EAC) — comprising Kenya, Uganda, Tanzania, Rwanda, Burundi, and South Sudan — without triggering the financial covenants of a traditional commercial bank facility under the Banking Act Cap. 488.

A Venture Debt Agreement is required when a lender wishes to provide debt capital with a warrant kicker — the right to participate in the upside of the company's equity appreciation — as partial compensation for the higher risk of lending to a pre-profitability company. The warrant is a key structural feature distinguishing venture debt from conventional term lending in the Kenyan market.

Parties in Kenya should prepare a Venture Debt Agreement (Kenya) proactively rather than waiting for a dispute to arise. Courts interpret agreements based on the written terms rather than oral representations. Under the Central Bank of Kenya Act (Cap. 491), the Central Bank of Kenya (CBK) regulates banking. The Capital Markets Authority (CMA) regulates securities under the Capital Markets Act (Cap. 485A). Section 84 of the Bills of Exchange Act (Cap. 27) governs promissory notes. The Kenya Revenue Authority (KRA) administers tax obligations. The Microfinance Act No. 19 of 2006 regulates microfinance institutions. The Hire Purchase Act (Cap. 507) governs credit sale agreements. Where the transaction involves regulated activities, prior approval from the relevant authority may be required before execution.

What to Include in Your Venture Debt Agreement (Kenya)

A well-drafted Venture Debt Agreement in Kenya governed by the Law of Contract Act Cap. 23 must include the following essential elements.

Parties and Recitals: Full legal names and registration details of the lender and the borrower, their BRS registration numbers under the Companies Act No. 17 of 2015, and a brief description of the borrower's business, most recent equity funding round, and lead investors. The lender's capacity to lend — whether as a licensed bank under the Banking Act Cap. 488, a licensed microfinance institution, a development finance institution, or an unlicensed private lender — affects the regulatory framework applicable to the loan.

Loan Amount and Tranche Structure: The total facility amount in Kenya Shillings (KES) or the agreed foreign currency where permitted under the Foreign Exchange Guidelines of the Central Bank of Kenya, the availability period, and whether the facility is available in a single drawdown or in multiple tranches tied to the achievement of operational or financial milestones. Tranching linked to milestones is common in Kenyan venture debt to align disbursement with the borrower's demonstrated execution capability.

Interest Rate: The applicable interest rate — which may be a fixed rate, a variable rate linked to the Kenya Banks Reference Rate (KBRR) or the Kenya Revenue Authority base lending rate, or a payment-in-kind (PIK) interest structure where interest accrues and is capitalised rather than paid in cash during the early drawdown period. For regulated lenders under the Banking Act Cap. 488, interest rates must comply with CBK guidelines on maximum lending rates.

Repayment Schedule and Maturity: The loan term (typically 24 to 48 months for venture debt in the Kenyan market), the repayment profile — which may include an interest-only period of 6 to 12 months followed by equal monthly principal and interest instalments — and the maturity date. Any balloon payment or bullet repayment at maturity must be clearly documented.

Warrant Coverage: The warrant or warrant cover percentage — typically 10–25% of the loan amount — expressed as the number of shares (or the right to purchase shares at a defined strike price) to be issued to the lender as the equity-linked component of the venture debt return. The warrant agreement must comply with the Companies Act No. 17 of 2015 regarding pre-emption rights, board authorisation, and the procedure for warrant exercise and share allotment by the BRS registrar.

Security Package: The collateral and security interests granted by the borrower to the lender, which in a Kenyan venture debt transaction typically includes: a debenture incorporating a fixed and floating charge over all present and future assets of the borrower, registered at the BRS under Section 863 of the Companies Act No. 17 of 2015; assignment of material customer contracts and intellectual property licences; and personal or corporate guarantees from key founders or holding companies. The Companies (Charges) Regulations 2015 prescribe the prescribed form for registration of charges.

Financial and Operational Covenants: Affirmative covenants (maintain insurance, file tax returns, provide quarterly management accounts, notify the lender of material adverse changes) and negative covenants (restriction on additional indebtedness above a defined threshold, restriction on asset disposals, restriction on new security over charged assets, and restriction on changes to the borrower's business without lender consent). Kenyan venture debt agreements commonly include a minimum monthly recurring revenue (MRR) covenant or a minimum cash covenant as a financial performance measure.

Events of Default: A thorough list of events triggering the lender's right to accelerate the loan, enforce security, and appoint a receiver under the Law of Contract Act Cap. 23 and the Companies Act No. 17 of 2015. Standard events of default include: payment default, breach of covenant, material misrepresentation, insolvency under the Insolvency Act No. 18 of 2015, change of control without consent, and loss of key licences or permits material to the business.

Forms-legal.com provides this Kenya Venture Debt Agreement template as a starting framework for growth-stage financing transactions. Given the complexity of warrant structuring, security registration under the Companies Act, and the interface with CBK regulations on foreign-currency borrowings, all parties should engage advocates admitted to the Roll of Advocates maintained by the Law Society of Kenya (LSK) and, where relevant, certified public accountants registered with the Institute of Certified Public Accountants of Kenya (ICPAK).

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@misc{formslegal-venture-debt-agreement-kenya,
  author       = {{Forms Legal}},
  title        = {Venture Debt Agreement (Kenya) (Kenya)},
  year         = {2026},
  howpublished = {\url{https://forms-legal.com/kenya/financial/loans/venture-debt-agreement-kenya}},
  note         = {Free legal document template}
}

Frequently Asked Questions

Statute-referenced template — Template last modified June 2026

This template is provided for informational purposes only and does not constitute legal advice. Laws vary by jurisdiction and change over time. Consult a qualified attorney for advice specific to your situation.Full disclaimer

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