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Get a Loan for your Business - Loan Guarantee Scheme for SMEs in SA

Taking over a business is not simple, I know. There are so many details to have in mind: products and service quality, employees, pay checks, deadlines, investments and so much more. All this, of course, is completely related to money. You need to manage a large sum of money properly in order to be successful. Of course, there’ll be times in where you’ll need to turn to lending companies to get finance. I want to take the time to focus on this last point to help you ease your business management. This article focuses on business loans in South Africa and what does it take to find the best alternative.

What is the COVID-19 Loan Guarantee Scheeme?

As we all know, the world is undergoing a severe pandemic that has brought most countries to a standstill. The Covid-19 has killed thousands of people worldwide and according to the WHO, the pandemic is far from over. This situation has created a major economic crisis and many businesses are striving not to go bankrupt.

For this reason, the President has announced that a Guaranteed Loan Scheme has been created by the National Treasury, the South African Reserve Banks and certain banks.

What does the COVID-19 Loan Guarantee Scheme for Small Businesses Consists of?

This program consists of loans for small and medium businesses with a guarantee by the Government. The companies that will be able to ask for this loan should have a turnover of less than 300 million rands a year. Also, these businesses must be in good standing.  

The money from this loan will have to be used to pay for operational expenses, such as paying salaries, agreements, contracts or rent. The maximum amount of time covered by these loans will be of three months. Also, there will be a six-month payment holiday. The repayment period will of up to 60 months, but business can choose to repay it before that time.

This program has been launched to help those companies that have been asking for business rescue since they are finding it very difficult to survive this crisis. The whole idea of this loan is to help businesses undergo the inactivity period we’re all living in this lockdown so that they can resume operations once restrictions are removed.

Which Banks will Offer this COVID-19 Loan Guarantee Scheme?

The banks that will make the money available for these loans are 6:

  1. Absa
  2. First National Bank
  3. Investec
  4. Mercantile Bank
  5. Nedbank
  6. Standard Bank

The risk of the loan will be shared by the Government and these banks. One of the most important requirements for these loans is that your company must have a previous relation with the bank you will ask the loan to. That is, if you are a client of, for instance, the FNB, then you should request this loan with that bank. Also, your company must be registered with the South African Revenue Service and must be in distress because of the pandemic and lockdown.

What happens if despite the COVID-19 loan guarantee scheme of r200bn the company liquidates?

If despite the help offered by this COVID-19 Guaranteed Loan Scheme your company closes, the loan is considered as equity. The whole idea of this loan is to help small and medium businesses to stay alive through these difficult times we’re living, not for banks to make a profit out of it. All of the profits made by these loans will be used to offset the losses of the COVID-19 Guaranteed Loan Scheme. The issue at stake here is saving thousands of jobs. 

2 South Africa Government’s Loans for SME to Alleviate the Impact of the Coronavirus Lockdown

The world is facing a pandemic that is risking the lives of thousands of people and the economy worldwide. As it was announced by the President, there is a nationwide lockdown for 21 days that started on March 26th. Due to this measure, most SME will have to close and will face serious financial turmoil. For this reason, the Department of Small Business Development has designed 2 palliative measures to help SMEs survive during this pandemic.

In the next few lines, we will discuss these measures to help you figure out if your business can access them. The facilities offered by the Government are:

SMME Business Growth Resilience Facility. This is a loan that will provide finance to SMEs that manufacture hygiene and medical products in South Africa. These products are essential to prevent the spread of the Coronavirus and our country needs these companies to keep producing them. This facility will provide finance to allow for the production of these much needed materials. The financial instruments can include working capital, equipment finance, stock, among other kind of finance. The amount that a company can receive will depend on the needs of each company.

SMME Relief Finance Scheme. SMEs that are undergoing financial problems due to the outbreak of this pandemic might be eligible to receive a soft loan for six months. If necessary, this six months term might be extended for a longer period.

What are the Qualifying Criteria for these Facilities?

In order for your SME to be eligible to receive funding and aid by the Department of Small Business Development your company must meet the following criteria (among others):

  • Being registered with CIPC
  • Being completely owned by South African citizens
  • 70% of the employees must be South Africans
  • Being in compliance with SARS and UIF

Companies owned by women, people with disabilities and young people will have priority over these facilities. As of April 2nd, SMEs can start the online application for these facilities. 

How to get a Business Loan in South Africa?

As you will find many types of loans to help your business, I shall try to explain the most relevant business loans for you to know how to get them because each loan might differ on their application and requirements.

I need an instant business loan; can I find it online in South Africa?

Easy business loans are commonly asked for business on the run. This type of loan is useful to take care of day to day operations. Still, they need to be taken carefully as it can rapidly be out of control. Next, I’ll expand on a loan option that takes care of this: credit facility. Of course, you can operate such loan online to simplify everything

How’s a Loan Facility useful for business?

A loan or credit facility works this way: you are given an account to receive constant funds over time. Of course, you have to repay the facility on due time; but the main difference is that you’ll avoid having to reapply every time you need money. Perfectly understanding how business finance works, lending companies allow you to take and give back money fluently assisting you to deal with your company’s cash flow.

How to apply for a business loan in South Africa?

As regards business loan application, it will differ depending on the stage your company is. For example, it’s not the same to start a business than to have one already established and try to improve it. In general, you will have to follow the next steps:

1) Choose the type of business loan you want and ask for a quote.

2) Then, you choose the term to repay the loan.

3) In this step, you must submit your personal documents together with those of your company.

4) Wait for the bank’s response to know if the petition was approved, rejected or, perhaps, you need to send further information.

5) Once your loan application is approved, you’ll get your loan contract to read and sign.

6) Your loan will be at your disposal in just few days. Remember, this last step might last longer if your loan amount is high.

How do Business Loans work in South Africa?

I’ve told you there are diverse types of business loans. Then, each bank will treat these loans differently. FNB, for instance, apart from the common business loan, offers:

  • A loan to help you booster your business. It can be used by South Africans holding an FNB business account and it can help them capitalise business opportunities.

  • There’s a business loan to help the environment while you make a profitable business. You can use funds to upgrade your locations to work on an eco-friendly way.

As you can see, there’s plenty of solution you can use for your business. Everything depends on:

  • What your company needs.

  • Which lending entity you choose to work with.

What’s the Quickest Business Loan to get approval on?

Without a question, credit facilities are the most suitable to get instant funds to manage a business finance. Let’s review the reason why: you’ll enjoy having an account from which you can withdraw money when you need it without having to waste time on application and approval process. It’s important to remember any loan petition is carefully analyzed by the lender, so when you apply for the first time, you ought to know you’ll have to wait some time.

How a Business Loan Calculator can show me how much can I borrow?

Next, I want to stop on this amazing tool you can use before applying for a business loan: online loan calculators. There are few things you must know to take the most out of them. To begin, there might be different types of calculators.

  • One of them, for instance, can show you the cost you would have to pay for your business loan. It will work for you if you know the sum of money you need to borrow. Then, you’ll have information about how much your monthly repayment might be.

  • Another type of loan simulator can assist you to show you how much money can you borrow. In this case, you must know about your business’s profit and expenses to let the business loan calculator show you how much money can you afford to pay back.

Any or both these calculators will be of great importance when examining your business loan quote whether you’re starting a new business, or you’ve been on the run for some time now.

Does it work to Compare Business Loan Quotes Online?

Absolutely! Comparing different business loan quotes will always be of great help when you need to decide which lender to ask the money to. Of course, you must pay attention to some other points when deciding:

  • The interest rate companies offer you will establish the cost of the loan.

  • Make sure your business loan’s terms and conditions are reasonable and that you can comply with them.

  • The terms of your loan should also be considered when comparing offers. It’ll make a difference, for example, if you get a short or a long term to cancel the loan.

Of course, all this information will be given to you by the loan simulators; that’s why it’s so important to include it when you’re looking for a business loan.

When do you start paying back a business loan?

If we talk about any kind of loan, the first installment to cancel it would probably be the applicant’s following pay day. Yet, this term can change according to the bank. In business loans, banks take notice of how the world of businesses moves around and so, they arrange payments according to the company’s financial movements. Keep in mind, it will also depend on the type of business loan you take. Some of them can be paid in flexible terms, for example.

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Are long term Business Loans fixed in South Africa?

Getting a fixed or a variable loan term only depends on what the company you choose to apply offers. You could find both types of loan terms: long or short according to what your business needs. Naturally, the business loan quote you consider asking will also influence the term to repay the loan. If you ask a high amount of money, the bank will state a longer term to cancel it. If you need less money, you can opt between some of the short term loan available for business. 

Can I get 100 Financing Business Loan?

The normal process to get a business loan requires the owners to present a detailed plan showing how viable the company is. After that, the bank states if the loan is approved and the amount they will lend. Getting a total business loan financial is a difficult task. If you are able of presenting a collateral to cover for the total loan quote, your chances of getting it will improve.

How does a Collateral Business Loan work? Can South Africans take them?

Whenever a bank requests a borrower to present a collateral, they do so in order to secure the loan they are about to issue. They know they’re lending a big amount of money and, as we can expect, they need to make sure they’ll have that money back. So, when you apply for a loan, you need to have a collateral. If things get complicated and you don’t repay the loan, the bank will be the new owner of that security and you won’t have the right to claim for it. This is why you must do anything you can to manage your business profit and expenses wisely and be an effective business owner.

Is any Business Loan issued against a property?

No, not all of them. Even though most of business credit is lending against a collateral, like a property, there are options to get funds for your company without worrying about presenting a security. Next, I’ll expand on this topic so you’ll understand better.

What unsecured business loans are available in South Africa? Are they suitable for small business?

Noticing the sum of money usually asked on business loans is high; banks tends to always ask for a collateral. But again, everything depends on what you need and the business you run. Of course, there are some options to get unsecured loans to finance your business, and these loans are most looked for small businesses due to the trouble they might find to present a collateral. A fine option if you have a small business is to start applying for a revolving loan. Next, I’ll give you useful details about it.

What are the benefits of getting a Revolving Loan to get fund for a small business?

If you are running a small business, you are constantly dealing with financial management. Revolving loans can be the perfect solution to cover this problem for some reasons:

  • To start, you get to have a better administration of your credit to adapt it to your company’s need.

  • Then, as long as you pay on time, you can go on applying for new funds without having to apply from the start.

  • Also, you get the money fast. This allows you to run your business finance in an organized way.

  • Finally, it’s your chance to build your credit ratings which will make you get beneficial terms on future loans.

Does any bank grant 5 million rands on Business Loans?

Business loan quotes tend to be higher than other types of loan’s quote. However, not all lending companies are willing to lend such a big quote as 5 million rands. Firstly, be sure you can manage a business loan that big, and that you really need it. Secondly, I can assure there’s always an option. For example, you can try RainFin as they work with many credit providers. There, you might get higher chances of having that sum of money borrowed.

What are the Requirements banks ask to be met when issuing Loans for Business?

The main requirement, naturally, is that the company you need the loan for is working on legal terms. Then, you are going to have to present documents proving your business makes enough revenue to pay for the loan instalments. Another requirement focuses on the owner or owners of the business. They must pass some credit check to prove the bank they don’t hold any financial issue. At last, most lending entities ask the applicant to present a business plan to study and decide if the business has a steady, well-thought management plan, as it will be essential to have a productive business.

What’s the average interest rate to get on a Business Loan in South Africa?

When the moment of studying a business loan application arrives, the bank takes the time to go through it in detail. The interest rate will be decided after taking several points into consideration. As a consequence, the cost of your loan can vary a lot. All the same, you shouldn’t panic as any loan granted must be in compliance with the NCA, so you know the interest rate should by no means be higher than what they have stated. Bear in mind, if your company and the owners have good credit scores, your business loan might get the minimum interest rate.

Which Bank it’s recommended to get a Business Loan to finance a commercial property?

As getting a property to run a business involves many factors, banks has developed some business loans known as Commercial Property Finance. Under this category you will find many options to purchase a property. For instance, Ithala Bank which is a company focused on business loan, offers:

  • A loan to repay in 10 years.

  • A loan to help you pay for developments your commercial property needs.

Then, there is FNB offering:

  • A loan if you want to invest on property.

  • A loan if you want to own your business’ offices and premises.

  • Another loan to make some improvements, as well as with Ithala Bank.

Although I’ve just named 2 banks, there’re some good lending companies issuing commercial Property Finance here in our country. You should do proper research to choose the perfect one.

Business loans Vs Personal Loans, which is the best?

These two types of loans differ greatly on how they function. Whereas business loans aim to help business owners lead an organized commercial finance, personal loans aim to assist citizens on their day to day life. All the same, some people may think a personal loan can work out to improve a business. This might be the case, but it’s important you remember business loan are carefully thought to work in a way that will really help your company. If you just need money to pay for a personal purpose, a personal loan might be a fine option. However, if you need funds for your business, any of the loans directed to companies we have mentioned will be a better option.

Is it possible to buy a franchise through a Business Loan?

If you want to purchase a franchise, you must be looking for a company dealing with such operation. Luckily for you, it is possible to use a loan to get a franchise. Clearly, this is one of the many ways to be a business owner even though it works slightly different. Finfind, for instance, is an alternative for you because they accept applicants having that purpose on mind. Of course, you need to satisfy the requirements they request and discuss on the business loan terms that best suit your finances.

What bank gives Instant Business Loans to self-employed?

Self-employed South Africans having issues to get loans is not new to anyone. First National Bank - FNB - is one of the few lenders accepting people working on their own. When it comes to business loans, these workers can get them by just proving the applicant and the business are in good standing status as regards their finances. FNB states a difference but related to whether the applicant is a current FNB account holder or not. If you’re not, you will have to meet additional requirements. Then, if your business loan is approved, they’ll ask you to open an account with them to manage your loan.

What is involved on Business Bridging Finance?

There are times a company needs to have urgent cash to expand the business, for example. As you are aware, loan procedures take much time. Bridging finance is the loan to solve this problem. Starting, you must know it’s a short term loan, and it’s granted when, for example, the following situation occurs: if we imagine you need to buy material to make new products to sell. You know you’re expecting to get cash for a different financing operation. For example, you sold a property and they’re about to pay for it. But the problem is you need the money now. Well, a business bridge loan would allow you to use the money until you get the money you’re expecting.

Are loans to companies only granted by banks?

Sometimes, companies need to fix some financial trouble, but they try to do it without having banks issuing loans. There’s an option in which loans are granted between companies, for example. In these cases, companies must reach an agreement in terms of loan amount, repayment terms and every detail about it.

Private Business Loans in South Africa

Before I close this article, I’ll expand shortly on two companies usually looked for their business loans. This is just extra information for you to increase information about your options to compare finance loans for your business.

What Business Loans can be applied for at ECDC?

Deciding the company to ask for help to get business financing is crucial for any company owner. It’s important you know what your business will get and for this reason, I’ll tell you a little about ECDC Business Loans

  • One option is to get a short-term Business loan: this product will facilitate you to manage cash flow in a more efficient way. You can choose among 3 types of loans in this option.

  • Another option is a long-term Business loan: this product is ideal to get finance for company’s vehicles

Is Lulalend a good option to get a Business Loan?

Lulalend offers fast and simple loans to help business’s owners. They have prepared their loan application to be completely online and so that allows them to make the process goes fast. Also, they offer to pay the loan in a year or 6 months, so it’s a fine alternative for those who look for a simple short term business loan. If you need just a little economic support for your business, Lulalend is a company worth paying attention to.

I have clearly explained how Business Loans work: what requirements do banks ask, what types of loans can be granted to companies and I have included precise information about some banks  and lending companies for you to have a better understanding on what do they offer. The last step to get to the best business loan in South Africa is to think carefully what is best to help take your company to the following stage. As always, you can ask me any doubt you need to clarify before applying for your business loan.

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Questions and answers

Can any South African business apply for a loan?

Your business can always apply as long as it meets the requirements. Remember, you have to prove you have an organized plan.

Hi! I have a business and it’s running pretty well; can I just have a small loan to invest on some equipment?

Sure! A revolving loan might be what you’re looking for. Also, short term loans might be really useful for your company.

Can I get financial help If I’m a sole proprietor?

Yes! That’s not an obstacle to get a business loan. Just pay attention to requirements and your business profit.

Leave your rating about Get a Loan for your Business - Loan Guarantee Scheme for SMEs in SA

Such detailed information! Thanks

I’m starting my business. This is really useful

I’ve worked with Absa and it was great. I think I would apply again with them.

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