Most small businesses in South Africa experience financial ups and downs. Times can be tough, business can be seasonal or cyclical, and there are always those unexpected emergencies that suddenly crop up.
There are also times when you want to expand your product line, take advantage of a great deal on the supply side, or fulfil a really lucrative order. If your business is not flush with cash, you’ll have to come up with another plan.
Types of small business loans
A small business loan is the obvious way to get out of a tight spot. Banks, financial institutions and government agencies, such as the Small Enterprise Finance Agency (sefa), offer funding for start-ups and small businesses.
All require supporting documentation and use your company’s credit record as the key determining factor in whether your SME qualifies for the loan or not. You can also expect to wait several weeks for the application to be processed.
A more practical solution is to apply for a short-term loan.
Why opt for a short-term loan?
A short-term loan is a flexible solution that unlocks relatively small amounts of cash. The payment term is typically three to 18 months. The fact that the funds are transferred into your business account within 24 hours is a major advantage of this type of business loan.
You’ll have the option of borrowing money on an unsecured basis, or you can use your business assets, such as company vehicles, business premises or equipment, as collateral for a loan. As risk is mitigated by the value of the assets, your company credit record is irrelevant.
When short-term loans are viable business solutions
It’s obviously not sound business practice to borrow money to service existing debt, especially long-term debt. It’s also not a good idea to take out a loan whenever the company is low on cash.
There are, however, several instances when borrowing money over the short-term is in the best interests of your business. The trick is to be cautious about how much you borrow, and diligent in paying back the loan in full and within the agreed term.
A short-term loan can be a viable small business solution when:
- a revenue-generating opportunity is available to your business
- more working capital is required to expand your product or service line
- you have to build up inventory and hire temporary staff to cope with seasonal demands
- a natural disaster, IT network glitch or equipment failure disrupts business
- you need cash to tide you over until the next guaranteed revenue stream.
How to apply for a short-term asset-based business loan
At Lamna, we offer fast, discreet loans against the value of a wide range of assets, from luxury watches and jewellery to vehicles or artwork.
For more information about using an asset to secure a short-term loan, contact us on 086 111 2866 or simply complete and submit our online application form.
ILLUSTRATIVE EXAMPLE
Client borrows R10,000 for 90 days.
Loan Amount | Repayment Period | Monthly Interest | Total Cost of Loan | Initiation Fee | Monthly Fee | APR |
|---|---|---|---|---|---|---|
R10 000 | 3 months | R500.00 | R2 914.50 | R1 207.50 | R569.00 | 60% |
Fixed rates range from 36% to 60% APR and payment options range from minimum 3 to maximum 24 months. Apart from the initiation and monthly fees shown below, the only additional fee is credit life insurance if the borrower does not have this already.