Updated 23.02.2023

Different Types of Business Loans in South Africa

There are many types of business loans you can avail in South Africa when you’re having trouble with your finances. Each of them has different terms and business loan rates, so choose one which best suits your organization’s financial situation.

Here are the available business loans you can choose from:

Debt Financing

Debt financing is the most common type of business loan that owners avail to fund various business endeavours. The money you borrow from a financial institution is repaid in instalments, including interest.

There are three forms of financing classed under this type of business loan, each having a different repayment period: short-term, medium-term, and long-term.

  • Short term

This small business loan is usually utilized as some sort of additional funding to complete the payment for small projects or contracts. It can also be used for resupplying inventory stocks.

This quick business loan can be provided in as short as 3 days after your request is approved. The repayment period for easy business loans like this usually spans from 1 to 12 months.

  • Medium term

This small business loan is often used for funding business projects and asset purchases.

Some lenders may offer customizable repayment plans, allowing you to repay the loan monthly, quarterly, or even annually. This makes it easier to budget because you can choose to repay your loan when business cash flow becomes more favourable.

  • Long term

If you need a bigger funding for your projects, this is the best option for you. This is often used for acquiring properties and executing buy-outs.

This type of business loan has a loan term that can span up to 10 years or more, depending on your deal with the lender.

Bank Financing

Bank loans are one of the most stable types of business loans but also one of the hardest to get in South Africa. Banks and alternative lenders may do extensive credit checks before your request for financing is approved. If you want to qualify for this type of business loan, you must have an excellent credit record.

According to a survey conducted by the Organisation for Economic Co-operation and Development (OECD) last 2017, only 26% of SMEs apply for bank loans to fund their business endeavours. The main reason for this low number is probably the lengthy process one has to undergo in order to get their loan request approved. It may take up to 8 weeks to get the request processed, then another 3 months for accepted businesses to get the loan.

Bank financing creditors often look for entrepreneurs who have businesses running for a certain period of time and have reached a required sales figure. Some will look for those who have been in operation for at least a year or two. As an additional requirement, your business should have reached R1 million in sales or more.

Bank finance has 3 forms you can choose from:

  • Overdraft

This easy business loan is a credit option that allows you to spend more than your credit limit to fund short-term expenses. Most of the time, this is offered as a secured business loan, which means you have to present an asset as a collateral to approve your overdraft request.

  • Asset finance

This type of quick business loan is used for procuring equipment and movable assets. This covers the purchase of office furniture, computer installations, company vehicles, medical equipment, and heavy-duty machinery.

  • Debtor finance

This refers to the process where the lender temporary finances your invoices until your client pays the contract. This is often done by businesses who have low working capital and are waiting for their invoices to be paid by the client.

Most lenders offer up to 75% coverage of the invoice amount. This type of business loan is harder to obtain compared to the other 2 forms of bank financing.

There are 2 types of debtor finance you can choose from. Invoice factoring is for smaller companies with low capital, while invoice discounting is for bigger organizations with established credit histories.

One limitation of bank loans is the amount you can borrow. For secured business loans, the amount you can borrow will depend on the value of the fixed asset being offered as collateral. Although many offer unsecured business loans, many borrowers go for the secured one because this allows them to bargain for a bigger loan.

Start-up Business Loans

There are many start-up business loans available in South Africa. Here are the most commonly sought after loans or financing by entrepreneurs:

  • Angel investment

Angel investors look for businesses that show high chances of making it big in their industry. These investors will fund your business in exchange for partial control and ownership of your organization. They may also ask for a portion of your revenue.

This private business loan can be hard to obtain because angel investors will risk their own money to fund your business. You must show incredible potential to lure in angel investors.

  • Venture capital

This is a start-up business loan that greenhorn companies look for since they don’t have enough experience and credibility yet to apply for debt or bank financing.

The lenders of this private business loan often requires partial and permanent business ownership in exchange for the money they’ll lend for your early-stage finances.

  • Private equity

Private equity funds are made up of money from various investors, pooled together into one large fund that’s used to invest in businesses. They can lend you large sums of money in exchange for temporary, partial ownership of your company.

Private business loan providers like this plan to exit your organization in around 5 to 10 years by selling their shares.

Government Loans

The South African government provides assistance to small business owners by offering government small business loans. This type of business loan is one of the most cost-effective funding a business can get because of its flexible terms and very low interest rates.

Each government small business loan provider enforces different criteria in accepting applicants. The common requirement among them is for you to have a good credit record. Your business also has to be financially stable.

Government small business loans are usually handled by the Department of Trade and Industry (DTI), along with the Small Enterprise Development Agency (SEDA).

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MoneyToday South Africa is a financial website aims to assist consumers with comprehensive information on personal finance, loans, insurance, investment opportunities, financial guides, tips and comparison of a large number of finance and insurance companies on the South African market.


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