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What should I know about obtaining a start-up business loan from my bank?
Key Takeaways
- Obtaining business funding is easier if you have been operating for a period of time and have a regular turnover.
- Loans can be secured or unsecured, and having collateral generally results in a lower interest rate.
- Unsecured loans include credit cards, overdrafts and personal loans.
- Certain types of businesses, such as a franchise, are more likely to obtain a business start-up loan.
- Loan repayment schedules vary, depending on the nature of the loan.
Business financing is readily available to established businesses because banks will typically lend money to a successful entrepreneur. However, as a start-up, you may 
find it more difficult to secure a loan, as you may not meet the standards, such as operating for six months or more and having a monthly turnover of at least R30 000. You may also not have enough assets to provide collateral. Alternative lenders who specialise in small business funding may be a better fit.
What bank loan options are available?
If you have collateral, you can apply for a bank loan, but there is no guarantee that your application will be successful. The bank will use the collateral as security, but it 
must be something they can easily convert into cash if you default on the loan, such as property, equipment or an investment. This will result in a lower interest rate.
You can also apply for an unsecured loan which will carry a higher interest rate because there is a greater risk for the bank. These loans include:
- A personal loan which is paid back over a fixed period of time. You stand surety for this in your personal capacity.
- A personal or business credit card, providing ongoing access to cash, as it is a form of revolving credit.
- An overdraft facility allows access to extra cash when you need it. The bank may require some guarantee if the business does not have assets.
What kinds of businesses are more likely to receive a start-up loan?
The lender wants to minimise their risk so they will favour businesses with a higher 
possibility of success. This includes a franchise that is part of a group with a proven business model and track record, as well as businesses that have signed contracts or tenders, indicating that they have assured income in the near future. Read more: What is a franchise and how does it work?
How is the interest rate determined?
A variety of factors are considered, including how long the business has been in operation, the collateral given, the business and entrepreneur’s credit scores, and the cash flow and revenue history. The stronger these elements are, the more favourable the interest rate.
How much money can you apply for?
This depends on the type of loan:
- Unsecured loan: R10 000 to R5 million with a fixed repayment amount over a
short term. - Secured loan: R100 000 to R20 million with a fixed repayment amount over a medium to long term.
- Credit card or overdraft: R10 000 to R5 million with flexible repayment amounts and revolving credit.
What documents do I need when I apply?
You need to have a comprehensive business plan outlining how you plan to make the business a success, including how you will differentiate yourself from your competitors and what strategies you will employ to outperform them. Then also include:
Your ID and proof of residence
Recent financial records
Realistic projections of your business's cash flow which will substantiate your ability to repay the loan and demonstrate that you have a solid understanding of financial planning
A South African Revenue Service (SARS) tax clearance certificate and VAT registration (if applicable)
Proof of business address
Detail of any collateral or assets to be pledged
The franchise agreement (if applicable)
Having all the required documentation when you apply will prevent delays in the application process.
