Lending a hand or losing an arm? Banks, small business and finance

He says Nedbank lays this approach – of entrepreneurs needing to show their ideas can work – over the lending criteria outlined above. “We don’t let rigid criteria stand in the way. The primary factor is proven viability; that’s the main driver around financing decisions.” Any investments that you can cede to the bank will help your case when asking for a loan, he says.

Ngundze suggests that you, as a small business owner or prospective owner, can take steps to help yourself by using home loan finance. He says some entrepreneurs take a covering loan against their existing property and put that money into their business. If you take a covering loan, the additional value in your property over and above the amount you still owe on your home loan can be leveraged as security for a business loan.

Home loan finance is much broader than, for example, a doctor who takes out a home loan because he or she will consult from a residential property. It is using your existing home loan to access capital. Ngundze says this financing option is not as widely used as it could be. Nedbank Small Business Services deals with businesses that have a turnover of between R150 000 and R5 million, and typically employ fewer than 25 people.

If your company fits the bill and you want to buy commercial or industrial property, the NedBond product allows you to borrow up to 70 percent of the purchase price or market value, which-ever is lowest. The approved amount must be more than R720 000. Ngundze says the interest rate a small business owner is offered is a function of perceived risk and the ability to effectively mitigate the risk. The bank looks at the likelihood of being repaid and the likelihood of something going wrong.