As an owner who is successfully running a business, there will be a time in your business’s lifespan when you’ll need a business loan. And, we all know that getting pre-selected for funding is important as it can offer your company the necessary means to grow and make more revenue. But, even though business finance in South Africa is available, it’s important to have the right knowledge about business financing. By understanding what type of questions you need to think about before you apply for a loan, it will ensure that you get into a loan agreement knowing full well what it entails for you and your business.
So, before going to the lender or filling out a loan application, read and understand the questions you have to ask yourself.
What do I need additional capital for?
It’s always important to ask yourself why you need the extra funds when planning on applying for a business loan. Yes, this may seem like a straightforward question, but it’s important to ask yourself to ensure that you are applying for a loan for the right reasons. And, to see if you need it now or if you can wait. And, if you’re planning on buying something, this will also help you consider whether this purchase is worth it and if you will still be using it after a few years. Because the last thing you need is to take out credit for a piece of equipment that you’ll only use for six months before needing a replacement. And, if that’s the case, then it’s best to rather rent out the equipment rather than purchasing it. Which helps you save money in the long run.
How much funding do I need at the moment?
Some people may shy away, especially when talking about money. But, now is not the time to be, because the lender will ask you questions that you need to be prepared for. And, it’s not only important so that a lender can take you seriously, but so that you get the right deal. Because if you ask for more than you need, you’ll be left with a lot of interest to pay back and you’ll have a longer repayment term. However, if you ask for a small loan it might not cover everything you had intended to do. So before you go and apply for business funding, make sure you know the exact amount you need. And, when the lender provides you with the amount of money you qualify for, don’t be swayed because you’re seeing big numbers, stay with the amount you had agreed to. This will allow you to pay less on interest rates and settle faster.
What is my business’s credit score?
Before you apply for a line of credit, you need to take a look at your business’s credit score. Because even if your personal credit score is outstanding, that does not mean that’s a reflection of your business’s score. So, you need to find out what your credit score is so that you can get an idea of whether you’re seen as a high or low-risk borrower. This is still up to the lender to decide as they have their own criteria when determining risks. However, it’s helpful to see if you stand a chance and have an idea of how you may look to lenders. As with your personal credit score, your score will determine the type of interest rate you receive from the lender. Checking your score will show you if there is any false information that you may need to change. It’s in your business’s best interest to know what is happening on their report before going to a lender. This ensures you avoid any surprises that could have been resolved. Your report will have the following information:
- Company information
- Auditors information
- Commercial judgements
- Commercial notices
- Active principal information
- Non-active principal information
- Properties owned
- Previous enquiries
If you have a low credit rating, you can improve your score by:
- Paying all check accounts on time.
- Start paying off more of your debt to reduce your debt ratio.
- Avoid relying on revolving credit.
- Always avoid missing payments or judgements.
- Removing inaccurate data on your report.
When do I need the funds?
When you go to the lender, it’s important to know when you’ll need the funding. Because there are cases where you simply cannot wait too long for financing. For example, if you’ve signed a new contract with a client that needs to be completed in a few months time, you don’t have the pleasure to wait for a long time before you get pre-selected. So, to be on the safe side and on the same page as the lender, rather know when you’ll need it and inform the lender. Then you can take it from there. Either they have fast processes, or you’ll have to look elsewhere.
Do I qualify for financing?
Before going to a financial institution, it’s best that you know whether you qualify for financing. This will ensure that you aren’t wasting your time applying if you won’t even get pre-selected. So, call your preferred lender or take a look at their website to see what their guidelines are for a business owner looking for funding. For example, some lenders might want you to bring your business plan with, while others may not see the need for that. So, always ask around and do research and see what the lender requires of you.
Do I have access to the needed information?
Whether you’re going to the lender’s branch or you’re applying online, you need to have all the documentation. Most lenders will have all the needed information and let you know how to apply for business finance, making it easier for you to gather the information and apply. Because the last thing you need is to go to the lender unprepared and leave without getting a loan. This will also show your untrustworthiness and that you lack responsibility because most lenders have all the information on their website. It is, of course, your responsibility to check. All it takes is for you to familiarise yourself with the process and understand what they need from you before you go.
Is there a type of funding catered to my need?
Before you go to a lender, you’ll want to ask yourself if there isn’t a specific type of funding that will cater to your business’s needs. And, this is apart from a short or long term loan. For example, there are financial service providers who offer equipment financing and leasing. Although this might not be the type of funding you were looking for, it can still come in handy and do exactly what you need it to do. So, take a look at different lender’s websites and see if you can’t find other offers aligned with your needs.
Will I be penalised for paying the loan early?
It’s important to find out whether you’ll be penalised for paying off your business loan earlier. Because there are financial credit providers who have rules put in place for people who want to pay off a loan earlier than the end date. This can then force you to pay for longer, even when you planned things out differently. So, always try and find this out before taking out a loan to avoid any complications in the future.
Final thoughts
Getting selected for funding is a daunting and sometimes tedious process. So, knowing all the information you need right off the bat can be helpful in the long run, making the process easier. So, don’t be intimidated to ask financial advisors tough questions. Because at the end of the day, this is beneficial for you and your company.
