For many reasons, personal asset loans may be better than bank loans for South African startups.
In this article we cover:
- the startup failure rate in South Africa
- why South African startups find it difficult to get bank loans
- the advantages of personal asset loans for young businesses
- where to get a personal asset loan in South Africa.
Startup failure rate in South Africa – and its number one cause
According to the University of the Western Cape, the startup failure rate in South Africa is higher than elsewhere in the world. Around 70% to 80% of local businesses fail within the first five years.
Difficulty in accessing capital is the number one reason small businesses fail. Startups, in particular, tend to run out of cash. Government funding and institutional lending are typically not an option.
Without sufficient revenue to sustain and grow a business, it has to close. Personal asset loans are financial lifelines young businesses can leverage.
Difficulty for startups obtaining bank loans in South Africa
As part of their risk-management strategy, banks use strict criteria when assessing business credit and loan applications.
Approvals are based on the strength and profitability of operations, along with a number of other factors.
Banks require a track record to demonstrate the business has adequate capacity to generate income and repay the loan.
Startups aren’t mature businesses. They seldom have the requisite trading experience to prove they can honour the loan agreement.
In order to mitigate risk, banks want some sort of guarantee, or collateral, to back business loans. As a rule, startups don’t have sufficient assets to secure the financing.
Banks want to know businesses have the tools, equipment and personnel to manufacture products or provide services, and convert them into cash.
Startups typically have limited assets.
A good business credit rating is key to a successful bank loan application. Without a positive track record validating the business’ historical ability to meet its financial obligations, acquiring capital through the formal lending system is virtually impossible.
As young businesses have limited opportunities to build credit worthiness, bank loan applications are seldom approved.
Advantages of personal asset loans for startups
Personal asset loans, on the other hand, are much easier to acquire.
Asset-based lenders release funding backed by a wide range of personal assets, from luxury watches and non-fungible tokens to fully paid-up cars.
There are no arduous qualifying criteria and loan applications are processed within 24 hours.
As personal asset loans are a type of secured loan, credit worthiness is not an issue.
Repayment terms are flexible and risk is limited to the personal asset used as collateral. The business itself, and the proceeds from operations, are safe.
A personal asset loan is a quick, safe and convenient way to raise the revenue required to keep a startup afloat.
Getting a personal asset-based loan from Lamna
If your startup needs an injection of cash, Lamna can help with a short-term loan backed by a personal asset – such as a vehicle, jewellery or an artwork of value.
Loan amounts are based exclusively on the appraised resale value of the asset offered as collateral.
- very fast access to the funds (often within 24 hours)
- no impact on your or your business’s credit score
- no need for financial records or proof of income
- competitive, NCR-compliant interest rates.
Client borrows R10,000 for 90 days.
Total Cost of Loan
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.