Before you can get a business loan to kick-start your business, you need to have a solid business plan.
Oscar Siziba, the provincial head of business banking for Absa in Gauteng, says that there are different types of loans, and the banks looks at each application for those loans differently.
“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 we can come to an easy solution based on your requirements,” said Siziba.
We look at three banks – Nedbank, First National Bank, and Standard Bank – and some other small business financers, to see what their business loan requirements are, as well as how to put a business loan together.
The business plan
Your business plan should have your cash flow information, the business financials, and also details about yourself, and your partners.
“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.
Putting the business plan together
When putting a business plan together, you need to show the banks what financial position you are in so they can give you the best loan, and also so they can understand if you can pay back the loan or not.
You will need to provide:
- Six months’ worth of bank statements,
- Signed financial information, such as annual financial statements and year-to-date management accounts,
- Financial projections 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.
Small Enterprise Finance Agency
The Small Enterprise Finance Agency, better known as Sefa, was established in 2012.
According to their website, their “mandate is to foster the establishment, survival and growth of SMMEs and contribute towards poverty alleviation and job creation.”
“Sefa will service small businesses in need of funding up to R3 million. Its lending instruments include direct lending to small businesses, wholesale loans to financial intermediaries and credit guarantees for businesses requiring bank finance,” says the Department of Economic Development.
Sefa offers a number of different types of loans, and each one has their own requirements, in terms of the size of the business, how many employees it has, and what the profits look like.
The one option is the Sefa Wholesale Lending Products. The business target market is “survivalists, micro, small and medium businesses including co-operatives.”
These businesses must fall into the following funding gaps to be eligible for this loan:
- Survivalists and microenterprises – loans between R500 and R50 000
- Small Enterprises - loans between R50 000 and R1 million
- Medium enterprises – loans between R1 million and R5 million
Sefa also offers Direct Lending Products which are “loans that Sefa provides directly to Small and Medium sized Enterprises as well as co-operatives operating in all sectors of the economy.”
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,” said Alan Shannon, head of Nedbank retail relationship banking Sales.
1. 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.
Small business services
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,” said Shannon.
Standard Bank offers four options when it comes to business loans. You choose between the overdraft, business revolving credit, the medium term loan, and the business mortgage.
However, you must be a business banking customer with Standard Bank to qualify.
“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. Business revolving credit
The business revolving credit loan offers you money when you need it, says Standard Bank’s 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. Medium term loan
The medium term loan is taken out between two and seven years. With this loan, the interest is linked to the prime interest rate (currently 9.25%).
The loan amount and your repayment plan all depend on how much collateral you have and how much you can afford.
4. Business mortgage
The business mortgage “offers finance to purchase a converted residential property whereby a portion or the entire property is used for business purposes.”
Only certain types of properties are allowed to be used for this mortgage. These are properties must have consent use from the municipality where less than 50% of the property floor space is used for business purposes.
Also properties that have 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, such as:
- 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.
First National Bank
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. Business loan
The standard Business Loan has a term between three months and five years, with the minimum loan amount of R2 000. However, this loan requires you to have a Business Account with FNB.
The Business 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, and is subject to your specific loan requirements.
2. Business Bond
The second loan available is the Business Bond.This is “suited to Business Account holders looking to unlock equity in residential property for additional capital to expand or refinance their business,” explains the FNB website.
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.
You will also need documents on an unbound property, which can be offered as collateral.
3. Business flexi loan
“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 therefore 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
The ecoEnergy Loan is for upgrading your premises to make it more eco-friendly and energy efficient in order to reduce your operating costs.
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.
When applying for a business loan make sure you know exactly the term of the loan (how long it is), how much you are going to get, how much you are paying back in interest overall, and how much you will have to pay back.
It is also important to understand your business, so that you know exactly what your needs and goals are.