Many entrepreneurs in South Africa consider going to financial institutions to get loans within the first few months and in the early years of their existence.
In this article we will share with you why you should and should not get a loan for your small business. I will also be sharing whether business loans are a solution for funding a small business.
We will be comparing major South African financial institutions as well so that you can understand what you are getting yourself into.
You need to keep in mind that when getting a business loan, you are getting yourself into debt. It does not matter whether it will grow your business or not. However, there are considerations to consider.
Do you think getting a Small Business Loan is a solution for your business?
As a small business, you need to think carefully before seeking financial help for your business. Firstly, you need to consider whether what you are asking for is what you need or want.
If you desperately need Small Business Loan, you are getting deep into debt or missing your chances to grow.
We will ask you some questions to consider in this article so that you know at the end that you are making the right decision.
The important question to ask is “If you are borrowing the money, will you be able to pay it back?”
Here are the good and bad reasons you cannot take a business loan or business funding.
1. Your business is struggling to survive:
If you can see that your business is reaching its dead end, you need to ask yourself whether you can pay back the funds.
The concern is that when you take a loan, you are attaching it to your assets, which are your vehicles, home, and your furniture.
You need to understand carefully that should you not be able to pay back. The loan institution will then come for your assets.
If you do not pay, your credit score may be affected to get funding in the future.
2. You have received a promise for a project:
Initially, starting a new project can come with costs for your business unless it is a government offer.
When you receive an offer from individuals (whether written or verbally), their withdrawal chances are very slim.
Should they withdraw from you?
Are you offering a similar service to multiple clients that you will not feel the loss?
3. You are going to venture into a new idea:
Ideas are exciting at the beginning and during conceptualisation.
As an entrepreneur, you need to take finance free risks.
It would help if you stayed far away as possible from getting funding for ideas. But, unfortunately, as in many cases, many ideas fail at the beginning.
Try to find alternative ways to test your idea with near zero cost, to minimise the risk. If the idea works out then, you can consider financing.
You may need is to figure out the initial business you can start that does not require capital investment
Obtaining a loan to start an unproven business is indeed a bad idea. Obtaining a loan to start a franchise usually is a good idea.
4. You are looking to expand offices.
The future informs all entrepreneurs to consider working from home.
If you are in the service sector, you may consider working from home.
It will also reduce the cost of travel, traffic and the time spent at the office.
So when is then the right time for small business to consider loans? Securing funds for a business expansion is probably one of the best reason to need a loan. This probably means you already have a successful business and need extra financing to reach the next level.
There are other compeling reasons for considering taking a business loan, but just be careful and understand what you getting yourself into.
If you know that taking the loan will put you in a position to pay it back quickly, then small business loan may not be a bad option after all.
When you do decide to take a loan for your business, please make sure you read and understand the terms and conditions because some loans will often have worse terms and require lots of paperwork.
Here are some of the loan options available for your business:
1. Merchant Capital
- Loan Options: Short Term Business Loan, Unsecured Business Loans and Asset Finance.
- Loan Funding Amount: They fund according to your business’s average turnover. You need to have the exact amount you are asking for in your account. For example, if you want R100 000, you need to have R100 000 on your card.
- Turnover of getting the loan: 24-48 hours after the online submission.
- Requirements: If you have the exact amount, they will contact you to discuss the amount you qualify for.
- What to do with the loan: It is up to you to use the loan.
- Application Type: Online at Merchant Capital Website
- Duration of the Loan: You pay via your debit and credit card. Payments can also be done through your card whenever a customer pays to you. They take a small portion until you fully pay off. So, you can pay the loan as you get payments from clients.
- Contact Number: 0861 6227 4825
- Terms and Conditions: A credit check will be necessary. You can still apply for another loan once you have paid 70% of the money.
- Risks: This is flexible if you do not have a monthly income.
- Loan Options: Anything your business needs.
- Loan Funding Amount: R10 000 – R1 500 000
- Turnover of getting the loan: 24 Hours.
- Requirements: You must be making a minimum of R500 000+ per year and be existing for at least a year to get the loan. You must be registered with CIPC. Your account must be linked with the accounting package Xero or Sage Accounting before applying to win the loan. A 3-month bank statement is essential.
- What to do with the loan: VodaLend does not have restrictions. You can use the money for anything your business needs: receivables, cash flow, buying inventory, or hiring employees. After that, it is up to you.
- Application Type: Apply for VodaLend Loan here
- Duration of the Loan: It is up to you to decide.
- Contact Number: 082 1960
- Email Address: email@example.com
- Payment Terms: You can pay the loan between 6 – 12 months. You will be paying in monthly instalments.
- Terms and Conditions: VodaLend provides legal advisors to assist you with contracts, labour disputes, debtors, legislations for FREE during the contract period.
- Risks: Like any other loan, you need to ensure that you have money available during monthly instalments.
3. Business Fuel
- Loan Options: Anything your business needs.
- Loan Funding Amount: R100 000 – R3 Million
- Turnover of getting the loan: 72 Hours.
- Requirements: Business fuel requires your last 12 months business bank statements
- What to do with the loan: It is up to your business needs. They have not restrictions.
- Payment Terms: On their website, you allocate the amount you want and then calculate your interests. However, if you can pay your interests earlier, you can pay less than what is quoted.
- Application Type: Online at Business Fuel Website
- Duration of the Loan: 3 Months – 12 months
- Contact Number: 021 914 0384
- Email Address: firstname.lastname@example.org
- Terms and Conditions: You can deposit the excess amount and reduce the term and costs instantly. You can withdraw from your excess deposit if you need assistance, and you can refinance.
- Loan Options: Flexible
- Loan Funding Amount: R20 000 – R2 Million
- Turnover of getting the loan: 24 hours
- Requirements: You must be making a minimum of R500 000+ per year and be existing for at least a year to get the loan.
- What to do with the loan: LulaLend does not have restrictions. You can use the money for anything your business needs: receivables, cash flow, buying inventory, or hiring employees. After that, it is up to you.
- Application Type: Telephone and Online at Lulalend Website
- Duration of the Loan: 6 Months – 12 Months
- Payment Terms: You pay monthly.
- Contact Number: 087 943 2381
- Email Address: email@example.com
- Terms and Conditions: You need to understand that this amount is required monthly. You can also opt to pay early and save on your interest. If you take the early loan, it is better for you as the interest is low. However, if you consider 12 months, the costs are quite high.
To learn about funding from government department and agencies, click here.