Welcome to our exclusive series of personal – and business – wealth management insights from Ajay Wasserman, Founder and CEO of the Fio Group. In this article, he explains the ins and outs of business loans so that you can decide whether you’re at the right stage in your entrepreneurial career to make use of this particular borrowing facility.

Businesses require funding to function: whether you’re a start-up or established corporate, there will more than likely be times when you need a cash injection to get you over a rough patch. If the global pandemic has taught us anything, it’s that you need to have a sound worst-case-scenario financial contingency plan in place to buffer unforeseen events.


“I can’t afford to get a loan.”

This is a valid statement, but ask yourself “can I afford NOT to get a loan?” If your business is struggling and there’s no other source of capital on the horizon, the repayment of a loan outweighs the risk of having to shut your doors permanently. It’s vital to employ a borrow-to-build mindset.

Take a step back and look at the long-term benefits of a capital injection.

  • You’ll have the means to build up the resources required to ensure your business operates properly. This includes everything from purchasing equipment to hiring employees.
  • You can enlist the services of wealth management professionals such as independent financial advisers who can assist you in drawing up a viable financial business plan tailored to suit your business’s circumstances.
  • Hire an HR company to perform an audit which will allow them to recommend the policies and procedures necessary to ensure your business operates optimally.
  • You can consult with marketing experts who will help you map out a compelling short, medium and long-term strategy which may include
  • Creating/refining your corporate identity.
  • Promoting brand awareness.
  • Defining and optimising the marketing channels that are best suited to your product and/or service.

There’s nothing wrong with being risk-averse, but there’s a difference between taking informed risks as opposed to flying blind and hoping for the best.


The different types of business loans available

Short-term and long-term business loans

Major South African banks such as ABSA; Standard Bank and FNB offer short, and long-term loans; however, the application process is quite timeous ­– approximately two months. It’s generally a protracted process. They generally require documents including but not limited to business plans, financial statements, tax records, and even financial forecasts.

Now you’ll have to wait approximately two months to find out if your application has been approved. If it is successful, there is an additional waiting period before you will receive the funds.

Business lines of credit

Many start-ups and SMEs don’t have the capacity to wait for business loan approval; the next option is considering a line of credit. This is a type of small-business loan that is more flexible than a traditional business loan. It’s crucial to understand that.

  • There is a limit to how much money you can borrow.
  • Interest is paid on the amount that you borrow.
  • You have the leeway to withdraw and pay back funds as you wish, as long as you don’t exceed your credit limit.


Invoice discounting or debtor factoring

A financial institution, e.g. a bank purchases your company’s debtor book or can lend money against the book. Do you know what a debtor book is? It’s a collection of all your receivable invoices.

The primary benefit of debtors factoring is that a business can use it to supplement cash flow issues if they’re struggling to survive. It acts as a financial buffer while they wait for their customers to make payment(s).


Seek advice

It’s best to speak to an independent financial adviser about these loan options. Make use of these borrowing facilities if it becomes necessary; don’t feel that you’ve failed because you need help with your cash flow. Did you know that Elon Musk needed to borrow vast amounts of money from investors to fund his SpaceX project just to survive a period before they launched?

I would suggest to any entrepreneur that if you are really passionate about navigating your business through rough patches that you are likely to experience, consider borrowing money but make sure you have a sound financial – and marketing – strategy in place to increase sales and overall business growth. This will ensure that you always meet the loan repayments.


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