Starting and running a business can be stressful, it requires hard work and dedication and above all else it needs large sums of money to help it grow. Businesses don’t only require loans and financial assistance when getting it off the ground, but later requires loans to sustain, improve and grow. These loans are often needed during renovations, expansion, rapid growth, emergencies or shortages in working capital.
Before applying for a business loan, it is important to ensure that your company finances are healthy. Be sure that you have a sound financial plan in place, as well as adequate cash flow to ensure that your business stays afloat. Having a healthy cash flow, gives you the freedom to apply for a loan whenever necessary.
The first thing you need to remember when applying for finance is that any product you choose will attract interest. This means that you need to consider affordability – you will need to include these repayments each month.
Think carefully about what your needs are before applying for a loan and remember the products and requirements differ from one country to another.
If you are in a position where you do need a loan, here some of your options:
A business or medium term loan
- You can:
o purchase assets
o fund refurbishments
o buy a small business
- Assists with expenses that you otherwise would not be able to pay for in one lump sum
- It is a simple way to secure funds
- The loan period is not fixed and is determined by your monthly installments
- The interest rate is linked to the prime rate, you can negotiate to have the interest rate fixed to protect your business against potential increases in rates.
- The size of the loan depends on how much collateral you have.
Overdraft
- Fluctuating loan
- Allows you to withdraw money up to an agreed limit, on which you pay interest until it is repaid.
- Aids cash management because the funds are instantly available.
- Suitable for short term use only.
A business revolving credit plan
- Repayments are paid in equal monthly installments.
- Once you have paid back a portion of the loan (usually about 25%), you can withdraw funds up to the original limit.
- The loan is capped at R1-million
- Repayments are fixed which makes for easy cash flow planning.
Credit cards
- There are two key benefits:
- Employee spending will be controlled,
- Receive a detailed record of their expenditure each month.
Debtor finance
Your bank purchases approved trade debtor invoices with an agreed portion, usually 75%, being paid at the time of purchase and a similar portion paid on all future approved trade debtor invoices.
