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Business Loans Explained

Loans • by Creditgenie • 16 October 2018

At some point in every business, an entrepreneur is likely to be faced with the questions of where and how to find finance for business purposes.  It could be that you have a viable business idea but lack the funding to start the business. Or despite being up and running, your dreams of expanding your business of bringing a new project to life requires additional funding to achieve the next milestone.

Many factors come into play as you consider the options for business finance and often, a business loan, in some form, may be the solution. Its worth noting that the credit provider’s decision to grant a business loan has to be based on a credit record. Whether it’s your own credit record or that of your business, a loan won’t be granted without the reasonable promise of repayment.

The conundrum for start-up businesses is that while you may need financing to get started, acquiring personal or business loans requires that your business has a track record. For the sole proprietors starting a small business – a personal loan may be a good idea. This could your loan application a greater chance of success seeing as you have a credit record to offer for the loan application.

In the case of a going business, where your personal credit score may not be favourable or where a more substantial amount of funding is needed, it may be a better idea to take out a business loan. The terms and conditions granted may also be more favourable when the business offers certain assets as collateral for the business loan. It could be that the business has assets in value far beyond the reach of your personal capacity. Small business owners can use the assets of the business as collateral to secure the loan.

Many lenders offer business loans in South Africa. This is the solution many entrepreneurs go to when they need unsecured business loans to fund their projects. Navigating the loan applications process may be a daunting task but here is some basic information to help you get started on the process.

 What is an Unsecured Business Loan?

Firstly, 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 is not for personal use. An unsecured loan is a loan that is issued and supported only by the borrower's creditworthiness, rather than by any type of collateral.

 Benefits of an unsecured Business Loan?

Unsecured business loan financing can be used for almost anything surrounding your business. With this loan, your business would get approved for a line of credit that can be drawn on whenever the need arises for additional financing. With the unsecured business loan, your business is not required to use collateral to secure the loan. Another benefit of this type of financing is that you are only charged interest on the money you borrow from that line of credit. Banks and other lenders who will look over your application for an unsecured business loan would like to see positive business credit history that shows that you will repay the loan. Since the loan is unsecured, they will be more cautious about who they extend credit to.

You may use the money to factor invoices, to expand, buy assets, settle debt, pay VAT, pay a deposit, pay tax, buy a vehicle, buy out a partner or for any purpose related to the business.   The main criteria is regular cash flow through your bank account; ideally from credit card sales, EFT, POS or regular payments into your bank account. (other conditions may apply )

Access to unsecured `business loans

There are many lenders in South Africa who can provide you unsecured business loans. There is a high demand for business loans in South Africa but this doesn’t mean that the big banks will let their guard down in assessing the risks for loan approvals. In additions to the bigger banks, many private, alternative lenders and small lending institutions have emerged to answer this growing need for business loans in SA.

Access to start-up business finance with a poor credit history. 

So what if you need business finance but you have a bad credit record?

Well, you are not alone. In fact, it may be more common than you think. Many people in South Africa find themselves with a negative financial history and are looking to begin a business and needing to borrow the funds to get started. Although it requires some more patience and a bit of research, getting approved to borrow finance in order to begin a new business venture is indeed possible.

A starting point would be to obtain an accurate assessment of your credit history. This may be done by accessing your full credit report. When you apply for credit, the potential lender will review your credit score and this is where your credit report comes in. Potential lenders will all take a strong interest in your credit history and credit score. The information on your credit report covers different aspects of your credit behaviour, so it's important to undertake a credit check regularly to identify and correct anything, including mistakes, that may lead to a loan rejection. Regularly checking your credit report for errors is one of the best ways to make yourself a more financially attractive customer.

Secondly, engaging the assistance of a financial consultant will assist you in assessing your options and assist you in navigating the process of applying for loans, particularly if you need to borrow a larger sum of money as they often have networks of lenders that are able to assist you, despite your poor financial past.

Be aware that interest rates are likely to be higher for those that need to borrow money but have a bad credit record as they are considered a higher risk by the lender.

 How can LoanfFnder help you?

Creditgenie have been serving South Africans for over six years. Through our Online Lenders, we process more than 500 000 loan applications per year, resulting in just over R10 billion worth of loans approved. Our winning track record has helped make us a leading name when searching for a loan online.

Our 4-in-1 Plan consists of a Financial Counselling Programme, Legal and ID Assist, quarterly credit report and a FREE  loan-finding service. `Our members enjoy the benefit f quarterly credit reports and ongoing financial counselling to support them throughout the various phases of their business growth. Learn more about our –in-1 Plan here.