All the answers to your unique business lifestage questions
Bear these guidelines in mind to make your next appointment with the bank manager a more successful one.
There are four main reasons why South African banks are wary of granting loans to small business owners:
- Your contribution (or capital injection) into the business speaks volumes. If you have contributed little or no equity to the business, banks will be wary of granting you a loan. Remember that banks don't finance businesses, they finance operating assets and working capital. So if your business is under-capitalised it may be difficult for you to raise a bank loan.
- Your small business may not have a structured balance sheet as many SMEs typically do not keep accurate books.
- Your business might not have a strong cash flow. The bank must be satisfied that you will be able to repay the loan, but this can prove difficult if your cash flow is strained.
- You may lack the necessary business management skills to run a small business.
Having an existing relationship with the bank will certainly help in your efforts to secure a business loan. For example, the turnaround time for loan requests is much quicker if you have an existing current account that is well conducted
Here is what you need when you apply for a bank loan:
Collateral - Before lending you money most banks will ask for collateral or security. Collateral is any asset that you own and promise to hand over to the lender if you cannot pay them back. This includes a house, a building, investments, savings or any other asset. Unfortunately, the smaller your business, the more collateral the bank may demand, as you are perceived as being a high risk. The irony is that the smaller you are, the less collateral you are likely to have.
A clean credit record - If you have a bad credit record, even if it dates back years, it works against you when you apply for assistance from a bank. Before you even apply for a loan do everything you possibly can to settle your old debt and clear your name. Be totally open and upfront about it with your bank.
Flexibility - The top banks in South Africa all have special divisions for small businesses. Even though banks regard lending to small businesses as risky, they are required by the Financial Sector Charter to promote this sector.
Patience - One of the most frustrating things about applying for finance is that there can be long delays in processing your application and granting a loan. Ensure that you provide all the necessary documentation to reduce the time taken.
During the course of running and growing your business, you will need access to both short-term and long-term cash savings to pay salaries, suppliers, or even to save for a future project or large payment. Standard Bank provides a range of flexible Savings and Investment solutions, with competitive interest rates, to help you meet your business’s savings and investment needs.