Depending on whether you have just decided to take that elusive leap of faith and start your own business, or expand on the current one, if finances are required – there are solutions out there that are available to suit your business needs.

Not all of us have entrepreneurship running through our veins, but for those who do, the South African economy is grateful to you! Small to medium businesses directly impact the growth of our economy for many reasons, one being that it boosts employment. That is why lenders are so eager to be a part of this process.

Not only are there exciting and expanding periods where you would require access to funds in the form of a business loan, often it is due to some really tough and trying times of the business. Businesses can go through some difficult cycles in their existence, and it’s important that there are lines of credit and a helping hand in the form of instant finance to keep businesses afloat. Cash flow is a major problem that SME’s face in this country and it’s one of the primary reasons behind the applications that come through for business loans.

The term liquidation and bankruptcy are taboo, so when things have about hit the proverbial, it’s time to consider help. There’s no shame in taking out small loans to assist with keeping your doors open to a trade because closing your doors is something that can damage a company’s reputation.

Remember, just because your business is struggling or you have a dream to open up a new one, there are some critical criteria that need to be met in order to qualify for this loan type. One can only imagine if the lending is done haphazardly to their borrowers, how that might affect the owner if he lands himself in more debt than he started with! Well, we know where it could lead, to those two undesirable terms earlier mentioned.

Let’s say I’m not in trouble, I am simply starting up a brand-new business, how does it work?

Statistically, it’s safe to assume that if you’re starting out, you might require access to additional funds from that which you already have. Even though you’ve been saved, you’re at a point now where you’re ready to get it all off the ground and have found there to be far more intangible items that you hadn’t originally considered. Should this be the case, a business loan is certainly for you! For start-up one of the most common forms of finance are personal loans which are given to the entreprenur or business partners individually. 

An important thing to note, however, is that startup loans aren’t as readily available as loans are for those businesses that have already been thriving for a good few years. But don’t fret! You are not without help, as there are many registered lenders that are willing to help startups, provided you can present a solid business plan with some determined and sincere effort to the financial success of the business in question.

However, should you find and choose a lender who is willing to offer you a business loan for your start-up (also known as a capital loan), be prepared to have all your paperwork in order if you plan to be considered and approved.

Do I need to put forward any security on the loan?

Generally, this is required for approval of a business loan. If you’re unsure as to what security would pass as collateral, then inquire at the lending institutions you are applying through. Usually, it would be any form of large assets, property or vehicle. If your taking out a personal loan to start a business, you would typically secure the loan against your home loan or, equity in your property.

Lenders require this to alleviate the risk that they take on when lending you this loan. Bear in mind, this isn’t a quick cash loan or a payday loan, this is ordinarily a large sum of money over an extended period of time, therefore banks and other lenders need to be prepared for the fact that individuals’ financial situations can drastically change in this time, rendering them unable to afford the repayments. In this unfortunate circumstance, the collateral saves you from losing your business and it spares the bank any losses.

If you’re quite a small business and in need of a smaller business loan than normal, for example, to do some minor renovations or otherwise procure a few machines for the business, then security isn’t always required. The only difference is that unsecured loans come with higher interest rates, naturally.

Ask yourself these questions before deciding to Apply for a Business loan

1. Do I really need a loan and why?

If you ask yourself this question and come back with answers that are suitably matched for a business loan, such as poor cash flow, renovations, expansion, new stock, then you can rest easy that you’re making the right call in applying for a loan. However, if your answer is more along the lines or inefficiency has led to poor productivity and your markups are out, therefore profits are low, then no amount of finance is going to sort your problem out.

2. Is the business growing fast enough?

Applying for finance in order to further grow your business is a great move, but consider the fact that the party on the lending side will need to believe in it just as much as you do. A sound business plan that forecasts the growth potential and market value after investing more money in it are imperative to the approval of your business loan. Lenders are willing to support you if they can see the end goal with you.

3. Is this the ideal time to apply for a business loan?

Bear in mind that a business loan is not an instant cash loan, i.e. if you’re in trouble and needs access to funds quickly, a business loan is not the answer. Banks will assess your business based on the risk involved in the lending of the loan. If you don’t have access to any money at all, chances are you might not be approved for the loan. Follow your business plan stringently and ask for funds where needed that aid the business plan, not when they’re required to save the plan.

Right, I’ve decided I need a loan, where do I start?

It’s part and parcel of any application, that one shop around. Simply due to the fact that business loans are quite complex and every lender will come with their own set of services and tailored products to match the needs of a variety of business types.

You might find one lender requires an entirely different set of documentation from another, or one comes with added benefits or longer loan periods. Comparing loans online is absolutely necessary.

What are some of the things that business loans will cover?

There are a number of reasons why entrepreneurs are already existing companies might seek a business loan. Funding a start-up as already mentioned is a primary reason for non-existing businesses. For existing, there are reasons such as expansion, refurbishing, purchasing additional equipment or simply to boost cash flow in the business.

Some business owners require vehicle finance to expand and maintain their fleet. Some start up businesses may need a vehicle for their daily operations. There are many companies that specialise in fleet finance and can offer good rates and flexible terms. 

It’s a good idea to reinvest in a business as well, so obtaining funds for this purpose is seldom ever a bad move, especially if it’s growing, and you want to help it along in those quieter periods.