6 Types of Business Loans for SMEs

Many types of business loans are available for small to medium-sized enterprises (SMEs). These loans need little collateral, get approved fast, and help small businesses launch or grow.

Loans are when you borrow money, property, or items and agree to pay it back with interest in the future. This loan can be borrowed from a traditional financial institution or other lenders. A small business owner might take out a loan to buy stock, cover payroll, or sometimes to fulfil purchase orders.

SMEs struggle to get approved for loans because of high turnover requirements, little assets, and a low credit score. As hindering as those requirements are, there are other types of business loans that you as an SME owner can apply for.

1. Personal Loans

Personal loans are a type of unsecured loan. Lenders rarely require any collateral, and they don’t need your credit score to be high for approval. If you qualify, you will receive your loan amount directly in your bank account. Personal loans work for a small business owner because they have low repayment amounts, can be used for anything, and are often more affordable than credit cards, or short-term, emergency loans. Lula and the Funding Hub specialise in personal loans for SME owners.

2. Credit Cards

Okay, so everyone knows the dangers of having a credit card. It can cause a huge dent in your credit score if you cannot keep up with the payments. However, for a small business owner, credit cards work because they are a revolving line of credit.

You can use the money loaded on a credit card, repay it, and use it again. This makes it a reliable source of money for an SME and ensures that you always have cash available for those sticky situations. Most banks in South Africa offer business credit cards for SMEs.

3. Cash Advance

A cash advance is when a lender knows that you’ll make future sales, so they give you the loan and when you do make those sales, you repay it, with interest, of course. There are various types of cash advances like Merchant Cash Advances. Merchant cash advances are loans received by companies or merchants from banks or other lenders.

Small businesses can attain this tricky but achievable loan, and it is likely that they will get approved. Cash advances have high interest rates, so make sure you can afford the repayments before applying for one. Retail Capital and Swoop provide cash advances for local SMEs.

4. Invoice Factoring/ Invoice Financing

Invoice factoring is a type of loan designed for businesses that lets their customers buy on credit and receive payment on terms. The lender provides money for your invoices. This allows you to receive payment immediately instead of waiting for customers to pay. The money lent to you is a portion of your sales ledger or outstanding debtor books.

This type of loan can help with cash flow, payroll and to pay suppliers. Merchant Factors and Bridgement are local companies that provide invoice financing services.

5. Overdraft Facility

An overdraft facility loan allows you to access extra capital to help you manage your cash flow. This type of loan is usually provided by banks and has little requirements, some banks won’t even ask you for a business plan, and you only pay interest on the credit you have used. Overdraft facility loans are very similar to credit cards, just with different repayment terms and requirements. Capitec, for instance, has an overdraft loan option for its business banking clients.

6. Government Loans

You can apply for various government funding schemes that are designed for small businesses. The Small Enterprise Finance Agency (SEFA) is a government funding scheme aimed at providing funding to small businesses for up to R 3 million. Its lending options include direct lending, wholesale loans to financial agents, and credit guarantees for businesses requiring bank finance.

There is a type of business loan for everyone. Most of these loans are easy to access if you are a small business owner. You can easily apply online, get quick approval, and receive your loan straight into your bank account for personal loans, business account for invoice factoring, and receive your cash quickly.

Apply for a small business loan that fits your needs today on the SME South Africa website.

Many types of business loans are available for small to medium-sized enterprises (SMEs). These loans need little collateral, get approved fast, and help small businesses launch or grow. Loans are Read More


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