Working Capital Loans

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A working capital loan is short-term funding provided to a business that allows it to cover day-to-day expenses. Commonly referred to as Working Capital, these loans cover the business’ operational expenses, even if the company isn’t making enough working capital to cover those expenses.

Find out how working capital loans in South Africa work, and if they’re right for you.

How do working capital loans in South Africa work?

Whether you’re finding the money to pay employees or tiding over a particularly rough patch, capital loans can help you cover day-to-day business costs. Depending on the lender, a working capital loan is an unsecured business loan — which means you do not have to put down any assets in order to be approved. Rates vary between lenders, especially since some lenders offer risk-based pricing.

What are the main benefits of working capital loans in South Africa?

Here are some benefits brought about by working capital loans in South Africa:

• Easy online application process. Most lenders allow you to apply online for a business loan. You can fill your details and complete your application in mere minutes.
• Flexible repayment terms. As lenders are aware this type of loan is for businesses where cash flow ebbs and flows, they generally offer flexible repayment terms.
• Loan terms. Loan terms vary, so you can choose the term period that suits your business needs best.
• Quick finance. As money is needed urgently to settle pressing business debts, the funds are usually transferred to your business account shortly after approval. Just how quick the cash disbursement is will vary between lenders, but it can be as fast as one business day.

Are there any restrictions to be aware of?

Take note of these restrictions before applying for working capital loans in South Africa:

• The money must be used on business expenses. Money is only loaned to you on the condition that it will help out your business. Therefore, it must only be spent on essential, business-related expenses such as supplies or employee wages.
• Your business may not meet the lender’s eligibility criteria. It’s important to be aware of the criteria lenders will be looking for, such as how long your business has been operating and its annual revenue.
• Not all lenders are flexible with repayment terms. This is something to keep in mind before you apply as you don’t want to be hit with a late repayment fee if you’re unable to make payments on time. So always compare your options and check if another lender is offering more flexible terms.

Comparing some working capital loan providers in South Africa

At the time of writing, in March 2020, here are a selection of the working capital loan providers in South Africa:

• Anglo Cape Confirming: Offers loans up to R750k, with a turnaround period of 5-7 working days.
• Fincheck: Partners South African banks and lenders to offer loans up to R72 million.
• Lulalend: A provider that offers instant application decisions, and funding up to R1 million.
• Merchant Capital: Offers loans with flexible repayment terms, that may cover up to 100% of a business’ average monthly credit and debit card turnover.

Is a working capital loan right for you?

Here are a few things to consider when deciding whether a working capital loan is the right credit option for your business.

• Can my business afford this loan? Like all other loan products, it’s important to consider whether your business will be able to afford to pay off the loan once it’s been approved.
• Secured or unsecured loan. You can choose between a secured or unsecured loan. It depends whether or not you want to put an asset such as your car, home or a business asset, against the loan you apply for more favourable interest rates or pay higher interest with an unsecured loan.
• Is there a flexible repayment option? Find out what are the available options for repayment and make sure that the one you opt for will be manageable considering your business’ projected cash flow.
• What are my options? As working capital finance comes in a variety of options, it’s important to compare and figure out which financing product will work best for your business.

Is your business eligible for working capital loans in South Africa?

Although eligibility may vary amongst providers, here are general requirements for obtaining a working capital loan in South Africa:

• Must be a registered business in South Africa
• Meet the lender’s minimum revenue requirements (usually around R1 million)
• Have at least 1 years worth of trading history
• Capable of making repayments under the agreed terms

Frequently asked questions

How much working capital can I borrow?

A number of providers typically offer loans up to R72 million, depending on your business’s financial fundamentals.

How is interest charged?

You receive a rate when you take out the loan, and that rate is applied to the amount you borrow. Alternatively, the interest rate you receive can be based on the risk your lender is taking by loaning you the money.

What are some alternatives to working capital loans in South Africa?

Depending on the amount of finance you need, you can apply for a bank overdraft, ask for discounted invoices or payment extension from your suppliers, apply for a credit card or take out another type of business loan.