If you own a business, there are lots of reasons why you might need funds, and sometimes in a hurry. For example, you might need capital to exploit an unexpected opportunity or to tide your company over a rough patch while you wait for payments to roll in.

So what are the options for securing finance in South Africa? Here we provide a basic overview.

Bank loans

Bank loans are less expensive than many other finance options. However, they’re also harder to get.

As a starting point, you need a good credit record. You may be asked to furnish financial statements, tax returns and a formal business plan with a budget. You’ll also need to be ready to answer questions about your business, why you want money and how you plan to repay it. Just “I need the cash” is unlikely to cut it.

Once you’ve made it through the initial application process, it may be weeks before a loan is approved and reflects in your bank account.

The gist is that as a finance option in South Africa, a fixed bank loan may suit you – but only if you have a good credit record, you’re not in any rush to get the funds.

Revolving credit

In the case of a revolving line of credit, you can withdraw a loan up to a pre-approved maximum amount, repay it and then redraw the loan again, repeating the process any number of times. The most common ways of accessing revolving credit are via credit cards or bank overdraft.

If it’s properly managed, revolving credit can have several advantages. You can borrow just what you need, when and as you need it, to manage day-to-day expenses. You can pay back the funds over time or all in one go, and – if you stay on top of repayments – the cost of the credit is typically low. Some credit card products are also associated with reward schemes, which may be of value to your business.

The key disadvantage is that once you start missing repayments, the costs spiral fast. It’s easy to lose control, clocking up debt you won’t easily be able to repay. Also,

•    annual administration charges may add significantly to the total cost of the credit
•    in some cases, extra charges may be levied for the amount of pre-approved credit you don’t use
•    although it’s usually much easier to open a credit card account than to secure a bank loan, you’ll still need a clean credit record to qualify.
•    the maximum amount you’ll be allowed to borrow will probably depend on what a bank can tell from your account history.

Borrowing from family and friends

It’s extremely common for small to medium business owners to turn to family or friends for short-term loans. Often little or no interest is expected in return, and you avoid having to submit to in-depth interrogations about your private money matters.

However, all too often, borrowing money from friends or family puts strain on your relationships with those close to you. This is especially unwise at times when you’re already under pressure for financial reasons.

If you do borrow from family or friends, ensure that the terms of the loan are completely clear. Put them in writing and stick to them no matter what.

Debtor financing

Debtor financing involves borrowing against invoices your business has issued but that haven’t yet been settled. In other words, you don’t have to wait for your clients to pay you. You can approach a bank or another lending institution and borrow against the funds you’ll be paid later.

A disadvantage is that handing the debt collection process over to a third party could damage your relationship with clients. You’ll also be liable for interest and an assortment of fees, ranging from an “activation” fee to charges for administration and annual reviews.

Equity financing

Securing equity finance involves getting funds in return for an interest, or share, in your business. You might attract investment from other companies, private investors or government bodies focused on stimulating the local economy.

To attract investors, you need a solid business plan and the ability to convince others of its potential value. If you’re already dealing with a business that’s in trouble, this isn’t a viable option.

The strings attached will depend on the nature of your agreement. For example, investors might offer finance in return for a share of the revenue your business generates. They might also insist on having a say in your business decisions.

Asset-based loans

Asset-based lending is an increasingly popular finance option, in South Africa and elsewhere around the globe.
With asset-based loans like those we offer at Lamna, there’s no need to investigate your credit history or to probe into your current financial situation. Instead a loan is offered based on the value of one or more personal assets you provide as collateral.

For more information or to apply for an asset-based short-term loan, contact us on 086 111 2866 or simply complete and submit our online application form.