Time is money, especially when you run a growing business or are trying to open a franchise.
Yet, working out how to get a business loan in South Africa demands so much of your time, with:
- A maze of complex applications, filled with jargon that seems designed to confuse
- Strict lending criteria can make you feel as though you’re being judged, not supported
- A lack of transparency on the true cost of borrowing, with hidden fees and fluctuating interest rates
Yet, in these challenging times, if you can unlock business funding, you can also create a competitive advantage.
Just 33% of small to medium-sized enterprises (SMEs) in South Africa report having access to credit, according to recent United Nations Development Programme (UNDP) statistics.
If you find yourself among this minority, then you’ll be in a position to seize opportunities that your rivals can’t, and extend your reach and impact.
Applying for a business loan is easier than you think. Explore Lula’s alternative funding solutions today and get the capital you need to take your business to new heights.
How to Get a Business Loan with a Traditional Lender in South Africa
Traditional lenders like banks and government providers are still the most common source of business finance in South Africa.
However, approaching one of these for a loan can be the start of a demanding journey. The application process is often a long, winding road with a lengthy list of obstacles along the way.
So what are the business loan requirements in South Africa? Here’s a look at the obstacles that can make qualifying for a traditional bank loan a challenge.
1. Credit history
Banks centre much of their approval process around you and your business’s credit score.
They tend to look for proof of a strong track record of managing credit, and often they’ll decline loan applications with less-than-perfect scores.
Bridgement, for example, states that a credit score of 660 is necessary to access small business finance options. Standard Bank even has a ‘Credit Score add-on’ feature within its app so that you can check that your score is high enough.
A strong credit history is good to have, but many banks’ need for an impeccable score means that SMEs with a slight blemish on their record are locked out from the funding they need.
2. Collateral
Traditional lenders often require collateral – assets you pledge to secure the loan. This could include property, equipment or inventory, particularly for a large loan amount.
The bank’s reasoning is simple: if you, the borrower, default on the repayment terms, they can seize and sell these assets to recover their losses.
Sometimes, the bank can even demand collateral after the agreement has been made, as per Standard Bank’s loan terms.
This can pose a problem, especially if you’re a young business and you lack the assets to offer as a guarantee on your loan.
3. Business plan
A detailed business plan, with forecasts and projections, is another common bank requirement.
“A bank won’t approve your business loan unless you can prove that you’re going to be able to pay it back – so they will need evidence that your business is likely to be profitable,” says Nedbank in a recent article.
The banks set out what they think should go into a business plan, like:
• Company details, including the company name, what your business’s product or service is, the problem that it solves and your values and mission.
• Strategy: This needs to outline how you’re going to market your product and attract customers.
• Finances, including bank statements and projected sales forecasts, expenses and profit estimates. They also need to be backed up with research that justifies these figures.
• Market research to prove that there’s a place for your business and a gap for you to make a profit. This should include your target market, competitors and any problems you have identified in the market.
Business planning is important but, as you can see, the time and effort you need to create a lengthy, formal business plan can distract you from important day-to-day operations.
4. Trading history
Many banks stipulate a minimum trading history, with two years being a common minimum requirement, according to SME South Africa.
This can hold back start-ups with high-growth potential but a shorter operational timeframe.
Alternative lenders have recognised this and are more flexible, often lending to business owners who have been operating for as little as 12 months.
5. Turnover
Banks frequently set minimum annual turnover thresholds that businesses must meet to qualify for a business loan or overdrafts, even if they’re just on a short-term basis.
In South Africa, many lenders insist on this being a minimum of R1 million, which excludes many promising SMEs because they haven’t yet reached a high level of revenue.
These barriers create a cumulative effect that helps to explain why two-thirds of South African SMEs struggle to access business funding.
It’s not just the sheer volume of paperwork; it’s the time commitment, the potential costs and the stringent criteria.
It means more SMEs than ever are seeking alternative funding solutions to meet their business needs and improve their cash flow.
How Long Does a Business Loan Take to Get Approved?
Approval times for traditional business loans in South Africa vary widely.
They often take weeks, sometimes months, which may disappoint businesses trying to figure out how to get a quick business loan.
Banks need time to assess the above requirements and conduct thorough due diligence. The likes of Standard Bank, Absa and Nedbank may take one to five business days, and in exceptional cases, up to weeks, to approve a loan.
Alternative lenders, meanwhile, are bucking this trend by offering simpler application procedures and quicker AI-powered assessments. Often, they get back to you in just a few hours, with the funds being paid out to approved applicants within as little as 24 hours.
How to Get a Business Loan in South Africa: Alternative Funding
In a South African lending market wrapped up in banking red tape, several types of alternative funding solutions have sprung up that let small business entrepreneurs access funding quickly and more easily.
“Alternative financiers are typically more technologically savvy and less risk-averse,” says Frankie DiAntonio, CEO of US alternative financier Lexington Holdings. “They are often motivated to connect people who are underserved by traditional banks with the funds they need.”
Here’s a look at some of the most common types of these financial services:
Asset finance
Asset financing offers a way for businesses to secure funding by using their own resources, particularly construction and manufacturing companies.
If your business has valuable assets on its balance sheet or handles many purchase orders, this option can be useful.
It works by either using your equipment or inventory as collateral to back the loan or by providing advances based on those purchase orders.
It does mean, however, that should you fall behind with your repayments you risk the provider seizing the assets in question.
Trade finance (Buy Now, Pay Later)
A Buy Now, Pay Later facility lets businesses offer their customers flexible payment terms and receive immediate payment for their sales, instead of waiting up to 180 days.
It works via a third-party credit provider settling the invoice with the business (the seller), then offering their customer (the buyer) a buy-now-pay-later facility with a set repayment period (e.g. up to six months).
The seller eliminates the risk of late payments and the hassle (and expense) of collecting them, while the buyer gets flexible payment terms. A win-win for both parties.
Cash advance
A working capital or cash advance provides businesses with a lump sum of money upfront, similar to a traditional bank loan.
However, this type of funding is often offered without requiring the business to provide collateral or other equity as security, removing a major obstacle.
Providers of this finance often make the funding accessible via a quick online application process, sometimes offering quick assessments, even within as little as 24 hours.
Revolving credit facility
A revolving credit, or capital, facility serves as a flexible source of working capital for businesses.
It allows you to access funds up to an approved limit, which can act as a financial safety net or a platform from which you can seize new opportunities.
This type of facility lets you withdraw money as needed, like when an unexpected expense crops up. For example; Repayment is typically based on the amount you draw down.
Funding Made Easier: How to Unlock Flexible Capital with Lula
If you’re tired of trying to find your way through the funding maze – and hitting dead ends commonly experienced with traditional lenders, Lula offers a different path.
We’ve stripped away the lending demands and red tape of small business loans to create a direct route to flexible business funding.
No wonder 82% of Lula’s customers state that their business outlook has improved since working with us, according to independent customer research by 60_decibels.
Access to increased stock, business expansion and better cash flow were the factors behind this, with 73% mentioning an increase in money they earn from the business.
To unlock new business potential with our funding, you need to meet three basic requirements:
- One year of trading – We know that strong businesses can emerge quickly, so we only ask for 12 months of history and just three months’ transaction data. A healthy credit score is also important.
- R500,000 yearly turnover – Our minimum turnover threshold is half of what is usually required by other financial providers.
- Registered in South Africa – We believe in empowering South African businesses, which is why we fund businesses registered in South Africa.
Get the funding you need without drowning in paperwork.
Lula offers access to up to R5 million, with assessments within as little as 24 hours.
All you need to do is apply online with your basic business details and just three months’ transaction data by submitting your bank statements, or even easier, securely linking your bank account.
You can also choose the solution that fits your growth: from our upfront Capital Advance fixed-term loan to our flexible Revolving Capital Facility, where you control how much you use and only pay for what you use, when you use it.
Business loan requirements: Traditional vs Alternative vs Lula lending
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Lula’s flexible lending requirements are matched by transparent pricing. You only pay for what you use, when you use it, and there are no hidden fees.
No business plan. No collateral. Just a simpler path to funding your business’s future.
Ready to access flexible funding without the red tape? Explore Lula’s alternative funding solutions today and unlock the capital you need to grow your business.
