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Category: ENTREPRENEURSHIP, Press Release


Everything you need to know about securing business finance
Written by Thoko Longwe
14 December 2012

The common perception around sourcing financing from banks is that it’s expensive and not easily accessible. Most people believe that the banks use stringent criteria to award finance and do not even try. The South African banking industry is monopolized by 5 major banks that use extremely aggressive marketing tactics to gain and retain customers.  As a small business owner it’s important to gain some financial know-how in order to make informed decisions that advance your business when trying to get a loan.


The big question is what criteria does the bank use in order to finance a business loan? As a small business owner securing finance for seed funding or even expansion can be a painful and futile exercise if not done properly. Understanding how banks asses your business’s viability and ability to repay their loan can assist you in presenting a “bankable deal” to them.

The following points address the most crucial aspects the bank considers in every application.

 

What the bank is looking for

What you need to know

How long has the business been in existence and how much experience does the key person have?

This is a crucial question that banks ask because it speaks directly to the capability of the business owner/manager to successfully operate the business.

 

How diversified is the business customer and supplier base and who are the main competitors?

These questions address the positioning of the business in the industry and the probability of success.

 

 

How often do the debtors pay, what is the stock turnover and how often does the business pay its suppliers

It is important to explain in detail your business’s cash flow cycle to the bank as this helps to paint the picture of how the business will service its debt

What security does the owner have to offer as collateral for the loan?

This is a key question especially for a start-up business with no financial or operational track record

 

What are the business’ financial projections over the next 3 years?

This information is important to have when looking for finance to expand your operations; the bank wants to know that the money they lend you will grow your business

How much does the business need to borrow?

This is a crucial question that must be clearly evaluated before presenting your request as the bank asses the business’s repayment ability based on the stipulated amount.

 

 


Assessing the true cost of the loan

The next thing the business owner needs to consider is what the true cost of the loan is.A key aspect of borrowing is to understand the cost of financing and determine the profits it will bring. The bank quotes an interest rate over the term which they money is lent to the business, however there are often other costs involved. These can include application fees, admin costs, documentation fees, service fees and commission fees to name a few. It is important to inquire on the fees involved from the onset so as to factor this into your costing.


Getting the best deal

In South Africa the major banks are very competitive and will try to undercut each other. This essentially puts the power in the customer’s hands and business owner must use this as an opportunity to get the best deal.  Present your offer to a different bank to see if they can beat the interest rate or even the fees associated with the loan.

Don’t be caught unaware as a business owner, the financial industry is highly regulated and any violations can be reported to the Financial Services Board for investigation.


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