How to get a business loan
Now, more than ever, is the time to get your business up and running, as Government is looking at unlocking the economy and creating jobs through small businesses, reported the Business Report. But in order to get your business booming, you need to have a solid plan, and some finances to back you up.
“There are different types of business loans, depending on the entity of the business which is requiring the loan, and the bank looks at these loans differently. So, I always say to entrepreneurs that a business loan is defined by what the business needs are. When you know what your business is all about, and what you need on the business side, based on that you can come to an easy solution based on your requirements,” says Oscar Siziba, the head of Business Banking for Absa.
We look at what the four banks – First National Bank, Absa, Nedbank and Standard Bank – offer in terms of business loans, and what documents you will need to help you put a business plan together.
The business plan
When you go to the bank for a business loan, they are going to want to know as much about your business, finances and the future of your business as possible. Therefore, it is important to not only make sure you keep track of all the finances of your business, but to come up with a good business plan and strategy for the future.
“From a banks point of view, firstly we look for a good business plan that talks to what the business is all about, who the customers are of the business and how they are going to service the business.
“Included in the business plan is cash flow, which has become a very critical piece of information from the bank, because then it determines the affordability in terms of paying back the loan. That becomes the critical document. Things like cash flow, financials, and details of the owners or shareholders in certain instances, are very critically for the bank when issuing a loan and what the business is looking for,” says Siziba.
When putting a business plan together, you are going to need financial documents to help the banks understand what financial position you are in, to better advise you as to what loan you will need.
These documents include:
· Six months’ worth of bank statements,
· Signed financial information, such as annual financial statements and year-to-date management accounts,
· Financial projects such as cash flow statements, your income statements and your balance sheet,
· And a business plan to show the viability and the sustainability of the business.
The Small to Medium Enterprises (SME) Toolkit says that each business plan is unique, and should be tailored to your specific needs. However, each business plan should have the basics, which include:
· Cover page,
· Executive summary about the business,
· Business overview which is the business profile and the product or service,
· Management: the entrepreneurs and the management structure,
· The Market: industry analysis and market analysis,
· Sales and Marketing strategy,
· Financial statements and projections,
· Legal and regulatory environment,
· Strength, weakness, opportunities and threats (SWOT) analysis and risk and reward assessment, and,
· Appendices and supporting documentation.
“You need to demonstrate to the bank your ability to repay the loan. You need to demonstrate what you need the loan for. Because in most cases people say that they want money, but when you start digging and asking what you want the money for they struggle to get to a number. And that creates a lot of challenges,” says Siziba.
First National Bank
FNB offers four options when it comes to business loans. There is the standard Business Loan, the Business Bond, the Business Flexi Loan, and the ecoEnergy Loan.
1. The standard Business Loan has a term between three months and five years, with the minimum loan amount of R2 000. This loan requires you to have a Business Account with FNB, and if the approval of the loan is successful they will open one for you. This is because FNB will make automatic debit payments from your Business Account.
This loan also has a set interest rate for the complete term of the loan. The interest rate is discussed with the approval of the loan.
2. The Business Bond, which FNB says is “suited to Business Account holders looking to unlock equity in residential property for additional capital to expand or refinance their business.” The bond can be between five and 10 years, with a minimum loan value of R100 000 and up to R1 million, which is subject to affordability.
For the business bond, you will need extra documents to the ones listed above. You will also need documents on an unbound property which can be offered as collateral.
3. “The Business Flexi Loan gives you access to capital you have already repaid on the loan. Once you have repaid 15% of the loan, you have access to these funds again to use in your business,” explains the FNB website. With the flexi loan you are allowed a maximum term of 60 months, with a maximum loan amount of R2 million.
This loan interest rates are linked to the prime rate (which is at 9.25%), and thus will change as the prime rate changes. This loan also needs extra documents when you apply: you will need 50% collateral in the form of property or investment funds.
4. The ecoEnergy Loan is for upgrading your premises to make it more eco-friendly and energy efficient in order to reduce your operating costs, explains FNB. This has a term between one and five years, with a minimum loan value of R2 000 and a maximum of R1 million which is subject to affordability. For this loan, you will also have to have an unbound residential property to offer as collateral.
Standard Bank offers five options when it comes to business loans. You choose between the overdraft, business revolving credit, business term loan, the medium term loan, and the business mortgage. The Standard Bank loans require you to be a business banking customer with Standard Bank.
1. “An overdraft is the ideal way to manage your cash flow. It is linked to your business account and you can use as much as you need, up to your limit,” explains Standard Bank. The money is available whenever you need it, and you only pay interest on what you use, not on what your limit is.
2. The business revolving credit loan offers you money when you need it, says Standard Banks website. The credit limit is restored automatically after 25% of loan amount is repaid, and on this you only repay the monthly minimum payment.
The amount you can qualify for is subject to an affordability assessment. You can have a minimum loan amount of R10 000, and up to a maximum of R4 million. This is also better for buying fixed items, rather than taking an overdraft, says Standard Bank.
3. The business term loan is a loan which can be taken out for up to eight years. The loan term is not fixed, but determined by the monthly repayments you make. The minimum loan amount is R50 000, and there is no maximum, says Standard Bank, but rather depends on what you can afford.
4. The medium term loan is taken out between two and seven years. With this loan, the interest is linked to the prime interest rate (9.25%). Furthermore, the amount of the loan, and your repayment plan all depend on how much collateral you have and how much you can afford, says Standard Bank.
5. The business mortgage “offers finance to purchase a converted residential property whereby a portion or the entire property is used for business purposes,” says Standard Bank. Only certain types of properties are allowed to be used for this mortgage. These are properties that have a consent use from the municipality where less than 50% of the property floor space is used for business purposes. Also properties that have a business zoning from the municipality and 50% or more of the property floor space is used for business purposes.
You can borrow between R100 000 and R10 million, with a repayment period of up to 20 years. You can also get a loan of up to 80% of the properties assessed value. For this loan, however, you will need extra documents to the ones listed above.
You will need:
· Offer to purchase,
· Complete income and expenditure report,
· Current Title Deed (or certified copy),
· Zoning Letter from the municipality,
· Letter of consent from the local authority for a crèche,
· Health certificate in case of crèche, and,
· Latest rates and taxes account.
Absa has a wide range of products available for you. “The main three different types of loans you can get, without trying to segment the different business, are the basic business loan, an overdraft and the term loan,” says Siziba.
Absa has eight different business loans in total: the business revolving loan, working capital loan, business overdrafts, term loans, Absa development credit fund, Absa women empowerment fund, Absa SMME fund, and the technology finance solutions loan. We will be looking at the main three, as mentioned by Siziba.
1. “The basic business loan, which is a revolving loan, basically is a loan that you are able to get into it, after you have paid off a certain amount back to the bank. This is normally between three to 18 months,” says Siziba. The interest on this loan is fixed on the prime interest rate (9.25%).
“A Business Revolving Loan is an ongoing or 'open' loan facility for an agreed amount. Provided a minimum of 25% of the approved loan has been repaid, you can re-borrow back to the approved limit without affecting your repayments. This means you can access the available funds whenever you need them, without having to re-apply,” says Absa.
2. The business overdrafts option is for short-term loans. However, you will need to have a Small Business Cheque Account to be eligible for this loan. “You can get an overdraft, which is really the easiest loan that you can get. This covers you in times of difficulty – it is a bridging loan. It helps you with your cash flow while you are waiting for your debtors to pay,” says Siziba.
Absa offers three different overdraft facilities: the standard overdraft is granted for a period of 12 months and reviewed annually; reducing overdraft has a limit which is reduced on a monthly basis, until the full amount is settled; and the temporary overdraft which is granted for a fixed period of time only and must be settled in full at the end of that period. With the overdraft you also only pay interest on what you have used, and not on the full amount of the overdraft.
3. “Then there is a term loan, from a period point of view is much longer, this is probably between five and six years, depending on how long you want the loan to run,” says Siziba. Term loans repayment periods are between 12 and 60 months. With this loan you can also choose to have monthly, bi-monthly, quarterly or annual instalments paid.
Besides just offering business loans, Nedbank also offers services to help you register your business. “Nedbank will help you facilitate the registration process of your business via our SwiftReg business registration offering in branch,” says Alan Shannon, head of Nedbank Retail Relationship Banking Sales.
Nedbank offers the StartUp loan. This is a loan for a business which has just started, or is less than two years old. You need to apply for a minimum of R100 000, and with that you get added bonuses such as unlimited debit orders, internet banking, and unlimited cash deposits.
However, Nedbank also offers other services with their Small Business Services section. “To address some of the challenges faced by entrepreneurs starting up, Nedbank Small Business Services responds by providing access to affordable financing through a holistic approach to support small business owners during this critical start-up phase,” says Shannon.
When preparing your business plan to present to the bank, make sure that you have all the proper documentation, and have clearly outlined your vision for the business. The bank will be asking you questions about your finances, and future projections, so make sure you have all the relevant information on hand.
“A sound business plan is key to the bank when it comes to considering a business for finance. This gives the bank insight into the plans of the business as well as future projections that demonstrate the viability of the enterprise. We also recommend that aspirant entrepreneurs go through small business seminars,” says Shannon.