Find the right financing for your business

No matter what Africa’s economy is doing, there is little that can starve the continent’s entrepreneurial spirit. So it’s encouraging that aspiring small business owners have the potential to make a good profit.

The banking sector meets the needs of start-ups with comprehensive financing products at first-class conditions. However, your choice of loan has the power to make your business fly or drown, so make your decision important.

Here we discuss some of the options so you can find the one that works for you.

Asset-Based Lending

Asset-based lenders make their profits from interest, so they are best suited for short-term financing. Because they are backed by your company assets, they carry some risk but are less constrained and more flexible than traditional products.

Most asset-based loans act as revolving lines of credit designed to spur growth. They provide short-term liquidity and serve stable businesses with solid business credit scores.

Unsecured or secured loans

Small and medium-sized enterprises hold tremendous promise for the growing banking industry, but their size makes them too small for traditional commercial lending and too big for the microfinance sector. Unsecured loans aim to fill the gap.

They don’t ask for collateral, but that increases lender risk. Banks are looking for a few confidence points to stabilize this shaky ground. You need excellent credit, a solid business plan, and detailed cash flow analysis, including interest and monthly payments.

Secured loans use collateral to improve risk and push interest rates into more practical ranges. They’re the most accessible type of loan, but you may need to restructure your mortgage and offer your home as collateral. If you have more than one property and need quick and easy financing, a secured loan will open the doors to your business sooner rather than later.

bank loan

Top banks bundle bank loans as business or start-up loans. This niche is highly competitive, so you’ll find an eclectic range of well-designed products here. Credit can be provided as an overdraft, revolving credit or fixed term products. The latter lets you repay at intervals that suit your cash flow, so it’s a perfect product for startups.

Contract finance is a one-time or recurring loan for businesses that operate on a contract basis. For example, some major South African banks have adopted black economic power policies to favor black-owned SMEs. Others offer specialized products that support BEE principles in the form of leveraged finance and advisory services. Many offer comprehensive advice and financing on BEE acquisitions and mergers, helping you structure a tax-efficient business.

Make sure you research what specific bank loans are available to you.

Bank loans require a solid business plan and an impressive credit rating. In return, you are working with a reputable lender with a long history.

Seller Loan

If you are buying an existing business, the seller may offer you a loan to cover your purchase price. This product is symbiotic, giving you the funds you need while allowing the seller to earn interest.

Vendor loans are typically used as part of the capital stack rather than the primary source. However, sellers need good credit. Nonetheless, this option can offer you cheaper and more accessible financing with faster closing.

alternatives

  • Government Grants: Governments in most countries on the continent provide loans to entrepreneurs who want to start a business.
  • Revenue-Based Funding: An investor gives you upfront capital in exchange for a cut in your future profits.
  • Pawn Loans: Short-term loans offered in exchange for assets. No credit checks are required.
  • Crowdfunding: Funding is provided through sites like Kickstarter and GoFundMe for a fee.
  • Angel Investing: A wealthy person invests personal capital in your business in exchange for equity.
  • Venture Capital Investing: Capital is provided in exchange for portfolio benefits, media exposure, and other portfolio benefits.

And remember, banks and lenders rely on your money to make a profit. The success of your business is its success, so don’t treat your lender as a service offering. You are the customer and your loan is profitable for them.

Don’t be afraid to negotiate the terms of your loan when you start or want to start buy a business. However, your financing should be just as profitable for you. Choosing a product with exorbitant fees and impossible interest rates does not create a basis for a prosperous future.

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