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5 Best Business Loans in South Africa [Finance Types Inside]

Did you know that choosing the wrong kind of funding can kill your business? Therefore, you need to select the best business loans to significantly increase your chances of thriving.

A business loan can help you start or expand your business or even sort out some short-term cash issues you may be facing. If you are looking for business loans online, you need to know that each of them has its advantages and disadvantages and the terms also differ. When you use a business loan calculator, you’ll have a good idea of how much the business loan will cost you up to the time you repay it.  

It is also important to know which banks offer small business loans so you don’t waste time on those that do not do so. 

In this article, we’ll take you through the 5 best business loans in South Africa. We’ll also cover their terms, who they’re most suited for, whether they have high or low-interest rates, and their benefits and drawbacks. This will help you identify the best business loans you should be looking for, for your business.

Let’s get started. 

When Should You Get A Business Loan?

As an entrepreneur, you need to make smart decisions. Thus, you can’t just apply for a loan without valid reasons bearing in mind that you will pay it back with interest. Therefore, under what circumstances is it wise to get a business loan? 

If you need a bigger physical location: If you’ve reached a point where there’s no space for new stock in your store or no room for customers or employees to move around then it means you are growing and you require a bigger space. This can be in the form of moving to a bigger space, extending to the next space, or setting up branches. This is a solid reason for requiring a business loan.

If you need to buy equipment and/inventory: Equipment doesn’t come cheap but they help your business deliver great results. If you want to buy such tools to help you perform better than your competitors, then you can take a loan for it. Buying stock for your business is also a good reason to apply for a business loan so you don’t miss out on making sales.

You want to build your business credit: If you have plans of getting big loans in the future then it’s a good idea to start with smaller loans now. When you repay them on time, you’ll build your credit to be able to access large-scale business loans long-term

You want to invest in a great business opportunity: You may not be planning on taking a loan but then a business opportunity comes up that you know you won’t get again. Maybe, your neighbor moved and you can now expand by taking up their shop or there’s an amazingly cheap offer for buying goods in bulk. If this happens, you can get a loan to capitalize on these opportunities. 

When you consider these reasons when looking for business loans in Joburg or South Africa in general, you will be less likely to get into unnecessary debts. 

Steps To Take Before Getting A Business Loan

Before you apply for a loan, there are things you need to do which include:

  • Ask yourself if your business needs a loan: Don’t just apply for a loan because you can get it. Check the reasons outlined in the previous section, and then determine if you need the loan.
  • Come up with a plan: Now that you are sure you need the loan, you need to create a plan for it. How will you use the loan to achieve your goals? This will help you determine the kind of loan you need, will make lenders feel more confident about giving you the loan, and will also help you use the money wisely.
  • Check your financial history: It’s important to know your credit score when applying for business loans online so you can understand your creditworthiness the same way lenders will. 
  • Understand the process involved in getting a business loan: We’ll go into details in this article on how fast you can get the 5 types of loans discussed. This will give you a better understanding of what to expect. When you know the process involved, you’ll prepare the required documents in advance to speed up the loan approval process. 

Following these steps will improve your chances of getting your loan request approved and achieving the goal you had in mind when applying for the loan. 

5 Best Business Loans for Small Businesses in South Africa

It is not enough to simply get a loan, you need the best business loans that will take your company to the next level. There are different types of business loans for small businesses in South Africa, let’s look at the top 5.

Unsecured loans

If you’re looking for business loans online, you should consider unsecured loans. 

An unsecured business loan does not require you to have any collateral. Before giving you the loan, the lender doesn’t ask for your a record of your vehicle ownership, a title deed for property, or any asset.

Instead, financial institutions examine data from your business to determine your creditworthiness. For example, they look at things like:

  • Your business credit score (the higher the better),
  • Your trading history (how long you’ve been operating),
  • Your monthly turnover (how much your business earns every month).

An unsecured loan is a good option for your business if:

  • You have a growing business,
  • You need funding fast,
  • Don’t own any assets,
  • Prefer not to use your assets as collateral

An unsecured loan also comes with various benefits. That is what makes them one of the best loans for small businesses.

They expose you to less risk: When you take a loan and present your family home or business as collateral, you could lose them if you fail to repay the loan. The lender has the right to sell that asset to recover their money. This doesn’t apply to unsecured loans because you don’t present any security to the lender. The lender is the one at risk. 

Loan approval is quick: Establishing the value and authenticity of collateral can take time. Since unsecured loans do not require collateral, the process is shortened. The financial institution instead focuses on the business credit report and such. 

Most loans are usually approved between 24 to 48 hours after application and providing any required documents. 

You need to have this in mind when applying for unsecured business loans in Cape Town; they have higher interest rates. This is because the majority of the risk is on the lender.

If you’d like an in-depth understanding of how unsecured loans work for SMEs, read this article

Merchant Cash Advance

As the name suggests, this is a type of cash advance that lenders give to businesses that need quick cash.

The same concept applies to Merchant Cash Advance (MCA). The 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.

For a lender to be sure you’ll make future sales, they’ll check your daily and/or monthly credit card receipts. Therefore, this type of loan works best for businesses that have a reliable amount of credit card sales, and for those that receive payment through credit card, cash, or cheque because you can show these to a potential lender.

The best part about MCA is that the cash is processed quickly ( anywhere from hours to days after the application).

Given that you don’t provide any collateral and the lender hoping you’ll make future sales, the interest rates are usually high.

For more on merchant cash advance explained, check FundingHub

Invoice Discounting

 Both of these are business loans but they are different.

Invoice factoring is whereby you hand over your unpaid invoices to a financial lending institution in return for a loan. Therefore, the lender gives you the loan (depending on the value of unpaid invoices you have) then they take up the responsibility of following up with your customers to pay what they owe you. This money goes to the lender. This is how they recover what they gave you.

The percentage of loans you’ll get differs from one lending institution to another. However, in most cases, they give you about 60 to 80% of your unpaid invoice and the balance (after they collect 100% of the payments) is their interest. In some cases, the lender will give you a percentage of the unpaid invoices and then also offer you other services. 

The advantage of invoice factoring is that it spares you the hustle of following up on late payments.

The disadvantage is that you don’t have control over how the lender collects the late payments. So, if they harass your clients, it may negatively affect your business. Additionally, your clients will be aware of your arrangement and the fact that you took this type of loan. 

Invoice discounting is different in the sense that a lender gives you a loan that is relative to your unpaid invoices but you are still in charge of collecting the late payments from your clients. In this case, your clients may never know that you borrowed any money since you’ll deal with them directly, as usual, and no one else will approach them to pay up. 

Lenders prefer invoice factoring. After all, they are guaranteed to get their money back because they have the right to go after your debtors. Given its risk, many business owners usually go for this option when they are hard-pressed for cash or are facing insolvency. 

Financial institutions are wary of invoice discounting because they can’t reach out to your debtors to get them to pay up. So, they rely on you to repay the loan when you get money from your invoices. That is why they prefer to give this kind of loan to businesses that have high income and positive net worth. 

Overdraft facility

This type of loan has the word ‘overdraft’ in it because it involves being able to withdraw more money than what is in your bank account. 

Since it’s the bank that gives you this money, this falls under secured loans. Therefore, you need to present collateral to the bank to be allowed to make the overdraft. 

Banks usually consider various types of collateral if you are applying for an overdraft loan. Examples include:

  • Your house or a rental property you own
  • Your equity holdings
  • Fixed deposits you may have
  • Your salary
  • Your life insurance policy

Once the loan request has been approved, you can make the withdrawal. 

If you are having short-term money problems, an overdraft can be your savior. Maybe you need to make some quick purchases or pay employees. The bank will charge an interest rate on the overdraft they’ve given you. 

Some of the benefits of this type of business loan is that:

  • You can access it quickly.
  • It is flexible in that you can withdraw the sum you need.

The disadvantages include:

  • If you withdraw more than the approved overdraft limit, you can be charged for it.
  • If you don’t pay your overdraft in time, you’ll incur an arrangement fee.
  • It puts your business assets at risk if you use them as collateral.
  • You can only receive an overdraft from a bank where you have an account. Another bank can’t give you an overdraft unless you take your business account to that bank. 

Trade finance

As the name suggests, this is finance provided for trade. 

There is a cycle involved in buying and selling of goods. Let’s say you want to buy some goods. You can be scared of paying before you see the goods because you don’t want to lose your money. The seller may also be scared of sending you the goods before payment because they’re not sure you’ll pay once you receive them. 

A third party (which is a financial institution) can come in to help these two parties. One way of doing that is the importer may get a letter of credit from his/her bank indicating that once the exporter provides a receipt that has the detailed list of the goods they have sent (usually via sea) then the importer will be comfortable making payment for those goods. This receipt is known as a bill of lading. 

The exporter can also get a loan from his/her bank with the promise to repay once the importer pays for the goods. 

In this way, trade can continue. 

Trade finance applies to whether you are buying goods/stock locally or internationally.

When considering borrowing from various financial institutions, it is important to ask for their business loans quotes so you can have a good idea of the APR of the loan. Thus, you’ll know the interest rates and any other charges like closing costs. When you have accurate information, you’ll be able to make an informed decision on which type of loan is most suitable for your business. 


Understanding the different types of loans and how they work helps to ensure you get the best business loans. The good news is that we already have this knowledge at FundingHub since we’ve partnered with over 40 financial institutions. Therefore, if you want to skip the tiring process of looking for lenders, contact us and we’ll pair you up with the right lender who’ll be excited to fund your business. All you need to do is spare 5 minutes to fill out our application form and we’ll take it from there.

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