Think carefully before borrowing
At some point, every small business will require some form of credit which will
enable it to grow to the next level.
- Alternate funding options - entrepreneurs often mistakenly assume that credit from banks is suitable for all their needs. In some instances your own equity, loans from private investors, family and friends, government funding and grants from Corporate Enterprise and Supplier Development Programmes (ESD), may be more suitable for early stage funding.
- Secured - businesses are required to provide some form of collateral which banks can use as security for the loan. Security can be assets such as property or financial instruments such as a savings account or share portfolio.
- Unsecured - this form of loan requires no collateral. The loan is granted based on the business' financial standing and ability to repay the loan.
- Credit facility - a credit card or overdraft allows the business the flexibility to withdraw, repay and re-use credit.
- Commercial property finance - this type of loan is used to finance the building where the business will operate from.
- Asset finance - is used to finance business equipment, vehicles and machinery.
- When applying for credit it is essential for entrepreneurs to understand what lenders look for when reviewing a credit application. This can be practically achieved by answering these questions:
- How much money is needed and what for?
- Does the business have a good credit standing or collateral if required?
- Does the business understand its current vs future cashflow - and has the affordability of the loan been stress tested?
- How quickly will the loan be paid back?
- This article appears courtesy of FNB Corporate Affairs
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