Banks are financial institutions that can provide, amongst other services, funding to businesses in the process of expanding and start-ups.
There are primarily 4 major commercial banks (Standard Bank, First National Bank, ABSA, and Nedbank) in South Africa that will advance funding and finances to businesses in need of funds. Capitec, largely due to its acquisition of Mercantile Bank, has positioned itself to develop a wing within its holdings to provide corporate related services. Banks primary fund businesses that are able to provide surety in the form of assets and based on the cash flow that the business generates or could possibly generate.
General funding criteria:
- Business plan
- Financial forecasts
- 50 to 60% collateral
- 6 months turnover from the bank account you will be applying for
- Maintaining a good credit record
- Business account needs to be healthy
There are a wide variety of debt instruments a bank can advance to a business.
Short term loans – This type of funding is usually used to finance accounts payable that are due or to purchase additional inventory to avoid stock run outs or even for operational costs. Short term loans should usually be paid back within 1 year.
Long term loans – long term loans are usually used to finance assets, purchase property, for expansion and/or acquisition. These loans are repaid over a period more than 1 year and usually takes over 10 years to be repaid. Interest rates for long term loans are generally lower than other types of loans.
Overdrafts are used when a business needs to access cash beyond that which is in the business account. Overdrafts are used for working capital management and to allow the business to manage cash flow when the business doesn’t have cash on hand and needs cash immediately to meet its short term expenses.