Business Loans in South Africa

Do you have a business idea but lack of funding to start it? Maybe you already have a business and you’re thinking about expanding it! However, you’re a little short of money to make this milestone come true.

Many lenders offer business loans in South Africa. This is the solution many entrepreneurs go to when Business Loansthey need unsecured business loans to fund their projects.

Read on to know how to get a business loan in South Africa to fund your ideas or your planned expansion.

What is a Business Loan?

A business loan is a form of debt given to business owners who are short of cash to process their company expenses. This type of loan is meant for business purposes only and not for personal use.

Business loans can be used to pay for the expenses of daily operations. Some use it to pay for the salaries of employees until the company recovers from a short-term slump in sales. Some use the borrowed money to purchase supplies to keep the business running.

There are many lenders who can provide you unsecured business loans. The most popular lenders are still banks, although you’ll have to pass a tight screening process to get their nod of approval.

There has a high demand for business loans in South Africa but this doesn’t mean big banks will put their guard down and approve everyone who needs a loan. This is the reason why many private, alternative lenders and small lending institutions have emerged to answer this growing need for business loans.

Two South African Business Man talking about business loans.

How do Business Loans in South Africa Work?

Just like any other loan, debtors are required to repay the loan on the agreed terms and timeframe. This is how lenders profit from this venture.

Many lenders have online platforms where you can submit your loan application. They usually respond within days after receiving your request.

Lenders impose interest on the loaned money. The interest may either be variable or fixed. Knowing which of these applies to your loan is a significant factor you should not disregard.

Fixed interest rates are often better since the rate stays the same all throughout your repayment period. On the other hand, loans with high-interest rates are ideal only to finance short-term needs. They need to be repaid within the shortest time possible to avoid plunging your company into unpayable debt.

Lenders offer a variable interest rate for business loans. It may provide more flexible repayment terms. They may simply increase the repayment period if prime interest rates go up, or they can shorten the term if rates go down. This way, your monthly repayments won’t get affected too much by the price fluctuations and they’ll remain within your allotted budget.

How Long Does It Take to Get a Business Loan?

The waiting period to get the business loan approved vary per lender. The loanable amount may also play a factor, with a bigger value often requiring longer time and stricter requirements to get approved. Non-bank institutions often have a faster approval process because they have lesser requirements compared to registered banks in SA.

Some lenders need only 24 hours to process your loan application. Banks, on the other hand, may take days to weeks to approve your business loan request.

How Much Business Loan Can You Qualify For?

The amount you’ll qualify for will depend on factors like credit score, credit history, and financial capability. For secured business loans, the assessed value of the asset in collateral will dictate the loanable amount.

Business loans range from R1 000 to R1 000 000, depending on the lender’s capacity.

Types of Business Loans in South Africa 

Here are the most common types of business loans available in South Africa:

  • Small Business Loan

Small business loans provide immediate funding to SMEs at a low cost. The extra cash is often used for purchasing assets or vehicles and continuing business operations. They often have lesser requirements and provide incentives that can help minimize business expenses.

  • Private Business Loans

This is an alternative business loan issued by a private institution or an individual. Private business loans can come from family members, venture capitalists, angel investors, online lenders, and other non-bank financial institutions. Those who can’t get a bank loan often seek this type of funding to continue their business endeavors.

  • Business Term Loan

This form of business loan has a defined payment structure, a short-term to a medium-term repayment schedule, and better rates compared to a personal loan. Aside from a structured repayment scheme, a business term loan offers access to additional funding when necessary.

Businesses are often offered the option of getting either a secured or unsecured term loan based on their financial capability.

  • Business Credit Line

A credit line provides businesses access to money that can be used for any business expense. Unlike business loans, there’s no need for lump-sum disbursement or to go through a long application process to get access to extra credit.

A credit line is a revolving fund, which means the amount you repaid can be borrowed again. This kind of credit facility is subject to an annual renewal and a credit review just like a personal credit card.

  • Invoice Factoring and Invoice Discounting

These two types of business loans provide short-term cash flow injections to raise funds owed on invoices.

In factoring, you somewhat ‘sell’ outstanding invoices to a third-party finance company. Depending on arrangements, you can borrow a percentage of the total value of outstanding invoices and receive other services from the lender. Oftentimes, the finance company will handle payment chasing, credit management, and invoice processing of the invoices.

In discounting, you borrow an amount relative to outstanding invoices to temporarily cover the cost of business operations. Unlike factoring, you maintain full control over your ledger, and you retain the responsibility of chasing payment for outstanding invoices.

  • Bank Overdrafts

This business loan enables you to spend more than the provided credit limit. It’s ideal for short-term expenses like quick purchases to keep the business running.

An overdraft is a secured type of business loan. You’ll most likely be required to present an asset as a collateral to get an overdraft request approved.

  • Secured and Unsecured Business Loans

Secured business loans are those covered by collateral. In case you fail to repay the loan on agreed terms, the lender can take the asset in collateral to cover the unpaid loan amount.

On the other hand, an unsecured business loan doesn’t require any collateral. You can borrow money without presenting an asset to get approved.

  • Business Credit Cards

Start-ups often have a hard time applying for credit because they don’t have any financial records to prove their capability to handle it. A business credit card makes this possible by using your personal credit record in assessing your competence to handle a business credit line.

  • Start-up Business Loan

There are several types of start-up business loans offered by various institutions in South Africa. Angel investors, venture capitalists, and private equities are the most common loan sources sought by entrepreneurs who would like to enter respective industries. To learn how you can get easily a start-up business loan in South Africa, follow this guide.

  • Merchant Cash Advance

A merchant cash advance (MCA) is not technically a business loan but falls under the category of factoring financing. It’s primarily used to improve cash flow that will enable continuous business operations.

In an MCA, the amount you can loan is computed using the average monthly turnover of your business. The loaned money is then repaid through a percentage of your monthly earnings. This flexibility allows you to repay the debt faster if you have a good month.

What is a Good Interest Rate for Business Loan?

The average interest rate of business loans ranges from as small as 3% to as much as 150%. Traditional bank loans offer the lowest rate, but they have a tedious application process. On the other hand, alternative lenders provide easier business loan applications, but they’ll ask for incredibly high-interest rates in return.

A good interest rate is one that won’t cripple your business finances. Pick one that will remain manageable even in scenarios that your sales aren’t that good. This will help you avoid instances wherein monthly earnings won’t be enough to cover loan repayments.

How to Calculate Business Loan Repayment and Interest?

The first things you need to know to calculate loan repayments are the interest rate and the amount you want to borrow. Lenders will usually provide the options for repayment terms which range from 3 months to 5 years or more.

For instance, you want to borrow R100 000 at 10% annual interest. You plan to repay this in a year or 12 months.

Using this example on a simple interest business loan, you’ll arrive at a 0.83% monthly interest. You can compute this by dividing the annual interest rate of 10% over the length of the repayment period in months, which is in this case 12.

Monthly loan repayments will vary though because lenders charge additional fees on their products. To make calculations faster and more convenient, use business loan calculators provided online by the best banks in South Africa.

Business Loan Calculators in South Africa

Nedbank provides numerous loan calculators for various purposes like home loans, personal loans, and business loans. Probably the most useful for businesses are the loan repayment calculator, the run-the-numbers calculator, and the maximum loan amount calculator.

Standard Bank offers an easy-to-use calculator that lets you input the amount, period, and variable interest rate of the target loan. The calculator will give you the monthly loan repayment, total loan amount, and the first repayment date.

WesBank calculator lets you input the loan amount, deposit amount, interest rate, payment frequency, and repayment term. Payment frequency has presets of monthly, quarterly, semi-annually, and annually, while the repayment term is set up to a maximum of 5 years. What you’ll get is the total credit cost, including the interest accrued.

FNB offers numerous calculators for home loans, vehicle financing, day-to-day banking, and business loans. They will let you calculate the repayable terms of the loan from 3 months to 5 years.

How to Apply for a Business Loan?

Lenders usually want to know the purpose of your loan request. Business owners, in turn, must present a clear plan on how they’ll spend the money they’re borrowing. Lenders will decline applicants who aren’t sure how they’ll spend the money they’re asking for.

Lenders evaluate the qualifications of a business by looking at the following information:

  • Credit history of the company
  • Any outstanding debt the company may have
  • The risk factor of your business

When applying for a business loan in South Africa, make sure you prepare your company’s bank statement. Statements should be for the past 6 months to a year ago, as lenders usually look for these documents to help them in assessing your overall financial performance. 

Start-up companies tend to be riskier compared to established ones. Therefore, it’s harder to get a start-up business loan from lenders, even from non-bank providers.

Depending on the type of business loan and the amount you want to borrow, you may have to personally submit your application to the lender’s office. Lending officers may conduct an interview regarding your request to help them assess your eligibility for a loan.

Online applications for small business loans and short-term debts are sometimes given by select lending institutions. This makes it easier and more convenient for SMEs to obtain.

Lenders will scrutinize how you plan to use the loan. They may also ask for certain requirements or milestones to be met to ensure you’re using the debt for the purpose you stated. Make sure you inquire about these criteria before submitting your application.

Best Business Loan Providers in South Africa

Here are the top business loan providers in South Africa:

  • ABSA

Absa provides a range of short- and mid-term financing solutions that can help start-up and established businesses. Corporate cards, asset finance, term loans, overdrafts, and revolving loans are some of the products they offer.

Contact details:

For business banking, you can reach them at 0860 040 302 or visit their website.

  • Capitec

Capitec offers business banking services to companies under the industries of transport and logistics, manufacturing and engineering, wholesale, trade, and franchising, and finance, business, and personal services.

Contact details:

You can get in touch with a Capitec business banker for inquiries by texting “GROW” to 32470. You can also reach them through other channels online.

  • Nedbank

Established and starting businesses can rely on Nedbank’s finance solutions like asset finance and unsecured lending. Asset finance includes term-loans, bonds, and vehicle finance. Unsecured lending, on the other hand, includes gap access and business credit cards.

Contact details:

Nedbank’s relationship bankers can take your call 24/7 through 0860 116 400. You can also ask them to call you back by leaving your contact details with them on their website.

  • FNB

FNB offers business loans with flexible terms, insurance policies, and capital amortizations. They offer solutions that are easy to obtain and quicker to get approved.

Contact details:

You can reach FNB through 0877 362 247. You can also fill out the “call me back” form at their website and have FNB call you on the preferred schedule.

  • Standard Bank

Standard Bank provide products and services that can improve cash flow or fund growth capital. They offer revolving loans, fixed-term business loans, overdrafts, asset financing, and specialized financing that can increase the liquidity and flexibility of businesses.

Contact details:

You can reach them through 0860 109 075 or by email through information@standardbank.co.za.

  • RCS

RCS is an alternative lender that provides quick access to business loans. You can borrow as much as R250 000 and have it approved within 24 hours through a simple phone call.

Contact details:

You can contact them by dialing 0861 SAY RCS (729 727) or visit their website.