How to apply for a loan – a step by step guide

In this article you will learn about:

• Different type of business loans

• How to apply for a loan

• What information lenders want

• Different types of funders

• Common reasons why business loan applications get rejected

The good news is that there are now more funding options available for small businesses than ever before beyond traditional banks and government funds. Despite this, many business owners still struggle to get loans approved. This article explains the different types of funding available to small businesses and how to increase your chances of getting your loan application approved.

Alternative financing options:

In addition to traditional banks, there are now many alternative financing products available to small business owners. They include:

• Bridging finance – a short-term loan to finance stock or pay for operating costs

• Purchase order finance – to pay for supplies and resources to complete a contract

• Inventory loans – helps businesses pay for stock

• Working capital finance – helps boost cash flow

Applying for a loan

Step 1: Make sure that your business is compliant from a regulatory perspective. To apply for a business loan, you need to be a registered business. You can register your business online on the Companies and Intellectual Property Commission (CIPC) website, or the Bizportal.gov.za website.

Step 2: Make sure that all your company financial documents are up-to-date and readily available. Lenders will want to see up to date management accounts, financial statements and tax clearance certificates. They may also request your business plan to see the direction your business is taking, cash flow projections, outstanding debtors, the last three months of bank statements, company registration documents, proof of business address, office lease agreement, shareholder agreements and any relevant business licenses, amongst others.

Step 3: Most business loans require some sort of collateral in the form of an asset (equipment, vehicles, stock or real estate) should you fail to make payments on the loan. You may also be asked to provide a personal guarantee or suretyship.

Step 4: Find a funder that best suits your needs:

Commercial banks do offer business loans to small businesses but they are usually hard to get.

Asset finance houses are more flexible when it comes to providing loans to businesses, especially if the funds are used for the purchase of an asset.

Direct lenders offer start-up funding and are an option for small businesses that don’t qualify for finance from a commercial bank. Be warned, however, that these loans usually cost more (in interest) than those offered by banks.

Many fintech companies offer business funding to small businesses over a short period of time with flexible payment terms. Applications are usually online and don’t require much paperwork.

Venture capital funds invest directly in the business for a return in profit.

What funders want to see from business owners:

• Business owners who are involved and committed, have a good understanding of their business and business acumen

• Business owners who run their business with integrity and transparency

• Business owners who understand their customer and market segment

• A profitable track record and a sound business plan

Reasons why your loan application might get rejected:

• Insufficient profitable operating history

• Not enough cash flow generation

• Limited collateral

• A bad credit score

• Debt levels are too high

A final thought:

Be patient! Plan in advance if you think you will need a business loan as it can take time for loan applications to be approved.

At Vodacom, we offer lending solutions to small and medium sized businesses. To find out more information, click HERE to learn how Vodalend can help your business.