Entrepreneurs should be aware that there are some wise steps to take before actually going ahead and applying for funds. Steps that can increase the chances of qualifying to borrow the necessary capital amount.
Further Reading: Loans to Start a Business with a Bad Credit History
Firstly, let it be said that obtaining a small business loan from the bank these days is very difficult.
The banks have had to tighten their belts on lending across the board since 2008 when the world’s finances began declining.
The credit crunch that followed saw the major banks in SA such as ABSA, FNB, Nedbank and Standard Bank taking a lot more precautions. Especially on deciding who to lend money to.
In order to qualify for a small business loan and get funding from the bank you will require a clean credit history. Usually a business that is already thriving and proof that you will be able to repay the cash borrowed. With interest in full and on time.
Without that kind of security the banks will not be prepared to offer any kind of business funding. Because they are interested in making money from the services and products that they offer. Not interested in taking on another individual’s business risks.
Small Business Loans Funding Options
Whether you have a small business that has been in operation for sometime and need to borrow funds to take it to new levels. Or you are just starting out and have nothing but your idea’s, a business plan and a healthy dose of enthusiasm. There are alternatives to getting a business loan from the banks.
Many entrepreneurs start a business by charging costs to credit cards. Not the most ideal because of the high interest rates associated with having to pay the money back. But definitely an option for some.
Others obtain loans to start up their business by borrowing from friends and family. This can be an attractive option for initial funding. As the interest rates can be negotiated or even non existent if there is a wealthy friend or family member. Someone that believes in the vision and individual starting the new venture.
Failing the above options there are other ways to get money to start up a new business. Babysitting, renting out a room in an apartment or house. Or buying and selling second hand goods online are a few suggestions of how you can raise cash to start.
Alternative lending is a relatively new concept with masses of people chipping in together to form a sort of crowdfunding. Through websites on the Internet.
Franchise Loans in South Africa
Franchise finance lenders can help you in South Africa if you are interested in running your own franchise.
Also, in this case the banks are actually more helpful with funding. As they are familiar and more comfortable with the franchise system. And the support from the franchisor means that the bank will be taking less of a risk in lending.
If you already have a sum of money towards the total franchise investment but require a small business loan to help out… The banks may be more willing to lend if you meet the criteria.
Micro Lenders and Loan Sharks
Business startup funding is a realistic challenge for many South African’s.
Microlenders have become more prominent in recent years. This too is an option although you have to be careful when applying for micro loans regarding inflated interest rates.
Be aware of loan sharks and small “shady” looking lenders that often employ scare tactics and unethical practices. Particularly in situations where a borrower falls into difficulty and fails to meet repayments.
Use your common sense when approaching any lending institute.
The sad reality is that most businesses fail within the first year or two.
Making it a very high risk for not only the banks but any kind of lender to help out.
Having said that, with some research and wisdom, existing and budding new entrepreneurs do have access to different types of small business loans. And funding idea’s that can take the company to new heights or start the ball rolling for a new venture.