How to qualify for short term loans for businesses in South Africa in 2024

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How to qualify for short term loans for businesses in South Africa in 2023

In need of a short-term loan for your business but don’t know where to start?

Applying for short term loans for businesses requires not only one’s financial documentation to be prepared prior to the meeting but also a convincing plan on how you intend to use and pay back the loan. Planning to succeed during the negotiation phases increases your likelihood of qualifying for the loan.

 Here are a few requirements you will need to account for before applying for short-term loans for your growing South African business:

  • · Proof of business ownership
  • · Minimum running time of business
  • · Minimum annual revenue
  • · Credit score rating

Different types of loans and means of repayment

Three of the common short term loans for businesses include term loans, invoice financing, and line of credit.

Term loans

With term loans, you usually are allocated a set amount of funds, with a fixed payment and interest rate. The terms are set with the lender in case of late or missed payments. This type of loan is the most familiar and would probably be what you’re considering when applying for a loan. There are, however, more options.

Invoice financing 

In the case of your accounts receivable (AR) not met, you request this loan. The amount is based on the sum total of your invoices and thus allows you to continue work despite unreceived payments. Invoices are thus your collateral.

Business line of credit

What credit would imply, with a fixed pre-determined limit. One repays interest on the funds withdrawn with a flexible arrangement. 

Repayment schemes depending on your loan

When it comes to paying back your loan, there are two main categories; secured or unsecured term loans. Depending on the size of your business and cash flow, this choice drastically impacts the future of many businesses. Repaying short term loans for businesses promptly can be the deciding factor in future relations with the sponsor and cost savings due to interest. Let’s dive into each category.

Secured loan

Invoice financing is an example. Collateral is offered in the case of defaulting on the loan. Having insufficient collateral could potentially disqualify your application. If your cash flow is low, this may be a better option. 

Unsecured loan

Credit ratings play a bigger factor since there isn’t collateral. Ratings directly impact the offers on short term loans for businesses and their repayments. 

Where can I apply for a loan?

For longer-term loans and waiting periods and larger funds, the bank is your go-to. 

Although an independent lender may be a flexible option, there may be unforeseen risks. Sometimes it’s the safer bet as your negotiation skills play the biggest role.

Venture capital or grants are reliable short term loans for businesses with good credit scores.

Applying for the loan

The whole process is ultimately a negotiation. Planning for success involves certain aspects such as assessing your resources and possible lenders down to the engagement. 

Financial statements

Along with your proof of ownership and your financial documentation, owners will look into cash flow. Most often their risk assessment will be unfavourable in low cash flow situations. 

Expectations of numbers: Finding data that aligns with the business plan

Doing your homework on your market size or niche and the likely trends that will play out will help your business regardless of whether you apply for a loan. Keeping tabs on your flux in annual revenue is advised.

Consulting your business analyst and chartered accountant will help you understand financial trends. Providing insight to the bankers will show them your level of commitment. If not, you may be a risk in their eyes. 

Negotiation 

And though it may sound easy, applying them when you are in the midst of a deal-breaker can become quite stressful. Securing short term loans for businesses requires the above to be in place. Preparation determines success. When you engage, it is important to build on your needs incrementally, while assessing the lender’s. A quick tip: try synchronizing your body language with theirs. Negotiating the terms of repayments is an option. Also, remember to record everything in writing. 

Avoid this!

The likelihood of you receiving a loan is undermined when you have been blacklisted or have bad credit. If you don’t find yourself in this situation it is in your best interest to aim for a personal credit score above 700. 

Bad credit score

Credit bureaus will have a record of your business score and bad credit will follow you throughout.

Keeping up to date with your repayments upon receiving a loan can positively impact your finances, amongst other risk factors. Avoiding new debt as well as making sure you’ve paid off old debt is key. 

Having a qualified accountant on retainer will ensure you have a plan in place and the allocated funds necessary. In a situation where you lack cash flow, accountants that have experience with multiple businesses will often provide uncanny solutions by drawing from experience.  

Information about the authors, publication, and publisher

Picture of Author - Arnaud Brunel

Author - Arnaud Brunel

After a 15 year long career in International Banking and Compliance, Arnaud launched multiple businesses in Cape town. He still heads 2 of these businesses today in the Digital Marketing Industry with Brunel Studios and in the Financial Industry with Thryv.

Picture of Publication & Publisher - Thryv Accountants

Publication & Publisher - Thryv Accountants

Thryv accountants is a private accounting company that focuses on outsourcing of the financial functions of small and medium companies in Cape Town and other regions of South Africa.

The publications on this website are for information purposes only. They are based on our professional opinion.

Contact details

Write to us at admin@thryv.co.za or give us a call on (073) 142-1010.

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