Small business loans guide

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    Alastair Woods

    Page reviewed by, Alastair Woods, South Africa Lead, on August 22, 2022 9:02 pm

    No matter if you’re a start up, mature business, sole trader, or a company with 200 employees, small business loans are the smart, flexible, and low-cost way to finance business activities. Stop relying on slow cashflow to expand. Turbocharge your company’s growth with a loan that’s purpose-built for your business needs..

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      What is a small business loan?

      To understand small business loans, we first need to ask, what is a small business? There are several definitions. Depending on who you ask, a small business can have as few as 1 and as many as 200 employees. In our experience, we’ve found that South African lenders define a small business as having up to 200 employees, with turnover less than R64m, and capital assets of less than R10m.

      Small business loans may be used for a variety of purposes – start-up, expansion, working capital, asset purchase, debt repayment; even the purchase of a business. Borrowed sums may range from R10,000 up to R10m and more, and with repayment terms up to 25 years if the loan was secured against an asset like property or land. Additionally, unlike equity financing, small business loans do not require company principals to surrender any of their ownership.

      Andrea Reynolds, Swoop’s CEO & Co-Founder
      Andrea Reynolds
      Swoop’s CEO & Co-Founder

      A word from Andrea

      "Small business loans are a smart, flexible, and low-cost way to finance business activities. Borrowed sums may range from R10,000 up to R10m and more, and with repayment terms up to 25 years. Unlike equity financing, small business loans do not require company principals to surrender any of their ownership, and are accessible to businesses with up to 200 employees and with turnover less than R64m."

      How do small business loans work?

      Small business loans function like many other business loans – a lender provides a sum of money which is paid back over time. The loan may be secured or unsecured and there are usually fees or other costs as well as an interest charge. There are different types of small business loan:

      • Secured business loan

      With secured business loans, the borrower provides collateral, (real estate, vehicles, machinery, etc) to protect the lender from loss. Best suited to mature businesses that own hard assets, these types of loans are considered less risky, tend to be larger, and are often cheaper than unsecured loans.

      • Unsecured business loan

      With unsecured business loans, the borrower provides no collateral, so the lender carries more risk. This means the loan is usually smaller and more expensive in terms of fees and interest. To obtain unsecured loans borrowers will typically need good to excellent credit references.

      A merchant cash advance (MCA) provides funding for businesses that receive payment via a credit card terminal. This type of loan is ideal for businesses with less than stellar credit.

      The lender provides a lump sum that’s repaid from customer card receipts.  MCA loans are flexible, can be set up quickly and they provide scalable funding – as your card receipts grow, so does your ability to borrow.

      Although not technically a small business loan, invoice finance utilises the security of a company’s unpaid invoices as the basis for a loan or an advance. Instead of sitting on unpaid invoices, the borrower receives a large percentage of each invoice as soon as it is raised. This type of loan is best for businesses that are trading successfully, but are being slowed down by slow payment of their bills.

      Every small business loan is specific to the borrower’s business and the circumstances it is operating in. No two loans are alike. If one type of loan is not available for you, there may always be a different option that delivers what you need. Register with Swoop today to start discovering your options.

      Who is a small business loan for?

      Small business loans are available for most types of business – from start ups, sole traders, and contractors to companies with as many as 200 employees – and across many sectors: Car dealers, healthcare providers, retailers, ecommerce operations, transport, logistics, artists, vets, dentists, painters, decorators, butchers, bakers, even candlestick makers. If you operate a small business, or you intend to start one, there is almost certainly a small business loan to suit your needs.

      How much can I borrow?

      Swoop’s lending partners provide small business loans from R10,000 to R10m and more, but how much your business can borrow is determined by factors specific to you, your business, and the type of loan you want:

      • Is the loan secured or unsecured?

      Secured loans usually offer a larger lump sum.

      • Long term or short term?

      Long term loans tend to be bigger than short term loans which are normally used to meet temporary needs.

      • Your credit

      This may include your personal credit score as well as your business’s credit rating. The better the score, the more you can borrow.

      • Type of business

      Even without the impact of the Covid-19 epidemic, some types of business have a higher failure rate than others. (For example, restaurants and retail). High risk businesses can usually borrow less than companies that operate in more stable sectors.

      • Your business revenues and income

      Your business turnover, your profit level, and the average sum in your business bank account all impact the size of your loan offer. Businesses that generate good profit and maintain a solid bank balance will usually be able to borrow more than a company with poor profitability and deep reliance on their bank overdraft. (That is known as ‘cash pressure’, and the more of it your business has, the less you can borrow).

      • Length of time in business

      Businesses with longer track records and multiple years of accounts can usually borrow more than start ups and young companies.

      • Assets

      See secured loans above. Businesses with hard assets, such as real estate, can usually borrow more than organisations with none.

      Swoop’s pool of lenders can provide a loan for many types of business. Even if you’ve been rejected elsewhere, we may still be able to provide the funding you need. Register with Swoop to discover your options.

      What are the interest rates?

      Interest rates on South African small business loans can vary significantly. Typically, unsecured loans come with a higher rate of interest than secured loans.

      Interest rates may be fixed – which means they never change during the life of the loan, or they may be variable – which means the rate will adjust up or down according to bank base rate set by the South African Reserve Bank. Most business loans charge interest as a percentage over base rate. For example, a loan offered at 2% over base rate, when base rate is 6%, will carry an 8% interest charge. Note that merchant cash advances accrue interest on a daily rate. This type of loan can be more expensive than a standard business loan.

      In practice, there is no one size fits all for business loans. The type of loan, type of business, your credit rating, length of time in business, and if the loan is secured or unsecured, all affect the interest rate. This means every small business loan is a custom fit.

      Swoop works with lenders who provide business loans across the entire commercial spectrum. Interest rates vary and loans range from R10,000 to R10m and more. Register your business to obtain a quote tailored to your exact business needs.

      Small business loan calculator

      A business loan calculator is a great starting point to understanding the cost of your loan. Use our small business loan calculator to work out your average monthly interest payments and the total monthly repayment amount, as well as the total interest paid and the total cost of the loan.

      Your loan details


      This calculator is intended for illustration purposes only and exact payment terms should be agreed with a lender before taking out a loan.

      Your results

      Monthly payments


      Avg. monthly interest


      Total interest


      Total cost of finance


      Get a quote

      What fees and other costs should I look out for?

      Business loans generally come with more fees and costs than personal borrowing. This is because every small business loan is different and quite often, the lender will need to carry out significant due diligence to arrive at their loan offer. Typical costs and fees include:

      • Origination fee

      A fee that the lender charges for processing your loan. The fee may be flat, but usually, it is calculated as a percentage of the sum borrowed. (For example, 3% fee on a borrowed sum of R10,000 would be R300). Origination fees are paid at loan closing. Often, the lender deducts their fee from the borrowed sum. You repay the fee as part of the loan.

      • Appraisal and Underwriting fees

      If the lender is required to conduct an appraisal of the borrower’s assets, they may charge a fee for this service. This is the same as paying for a surveyor’s report on a house you wish to buy. Underwriters carry out due diligence on your application. They check your tax filings, bank statements etc. Fees may be charged to cover the underwriter’s costs. Both appraisal and underwriter fees are usually flat rate and charged at loan closing.

      • Pre-payment penalty

      If you wish to pay the loan back early, there may be a cost for doing so. This is called a pre-payment penalty and it is typically equal to one month’s loan payment.

      • Referral fee

      If you secured your small business loan through a third-party introduction service, the lender may have to pay them for bringing in your business. The lender may recoup this fee from you, usually collecting at the closing of the loan.

      • Factor rate

      The factor rate is used to calculate the cost of a merchant cash advance (MCA) as well as some short-term loans and invoice finance. It’s expressed as a decimal number usually between 1.1 and 1.5. To understand how much your loan will cost, multiply the factor rate by the total amount borrowed. For example, a loan of R10,000 and a factor rate of 1.2, will require you to repay R12,000.

      • Default fees

      If you make late payment, miss payments, or default on the loan, there are costs to pay. These include late fees, bank charges, unpaid direct debit fees, interest surcharges and delinquent interest rates. To avoid these costs, only borrow what you can afford. Use the Swoop business loan calculator to find out how much you can borrow and what the repayment costs will be.

      What can I use the loan for?

      Small business loans can be used for almost every legitimate business activity. Use your loan to buy equipment, real estate, plant, vehicles, machinery, even a business. Use it as working capital to expand, start a new business, or take on more staff. You can even use a low-cost business loan to pay off more expensive short-term business debt.

      Government funding support explained

      The South African government has established a number of agencies and funds to support small businesses, including:

      • The IDC is a national development finance institution set up to promote economic growth and industrial development. They offer loan amounts of a minimum of R1-million with a maximum of R1-billion per project allowed
      • SEFA provides financial and business support to numerous SMEs and cooperatives throughout the country, furthering the development of existing enterprises or the establishment of new enterprises
      • SEDA is tasked with developing, supporting and promote small enterprises throughout the country, ensuring their growth and sustainability
      • The NEF is tasked with promoting and facilitating black economic participation by providing financial and non-financial support to black empowered businesses and promoting a culture of savings and investment among black people
      • The Technology Innovation Agency (TIA) was established in terms of the TIA Act 26 of 2008, with the objective of stimulating and intensifying technological innovation in order to improve economic growth and the quality of life of all South Africans
      • The DTIC and its subsidiary agencies are involved in promoting economic development, black economic empowerment, implementing commercial law, promoting and regulating international trade, and consumer protection

      Swoop is able to help you navigate the various government funds and agencies, and apply for funding where eligible. Register your business to find out more.

      Can I get a small business loan to buy a business?

      The short answer is yes, you can. The longer answer is, yes you can, but do your homework first. Buying an existing business with a loan can have advantages over starting a business from scratch. You buy an established brand, an existing customer base, supplier contacts, track record, stock, perhaps even premises. Set against this are the ‘Goldilocks’ factors that lenders are looking for:

      • Have you evaluated the business you wish to buy?

      Have you thoroughly checked the accounts, the assets, spoken to suppliers and customers, researched the market value of the business, and considered the long-term potential? (It’s not a fad). Lenders need concrete answers to these questions. It pays to be prepared.

      • Business reputation.

      Does the business have any negative aspects – like supply chain issues, or employee grievances? Business ethics are also important.

      • Customer opinion and expectations.

      What do existing customers say about the business? Is it viewed in a negative or positive light? What are customer expectations? Will they be there to support the business a year or so from now? Where will new growth come from?

      Is a small business loan secured or unsecured?

      It can be either. Secured business loans use collateral, such as real-estate, to provide a guarantee to the lender. This protects them from loss in the event of borrower default. Unsecured loans provide no collateral. The lender is at risk if the business defaults on the loan. Secured loans are typically larger, place less emphasis on the borrower’s credit score and come with a lower interest rate than unsecured loans.

      Small business loans for women

      According to research, only 21% of South African SMEs (small and medium size enterprises) are led by women. Additionally, female entrepreneurs are said to be more reluctant to seek business borrowing than their male counterparts. Which is unfortunate, because statistics also show women are generally more reliable than men when it comes to their borrowing.

      Swoop works with trusted lenders who understand the lack of representation and difficulty that women face as entrepreneurs and business leaders. These lenders offer loan products specifically designed for women in business – secured, unsecured, merchant cash advance and more. Female borrowers may also benefit from lower interest rates and fees. 

      Funding support for BBBEE businesses

      BBBEE stands for Broad-Based Black Economic Empowerment. It is also referred to by the acronym B-BBEE.

      BBBEE is a programme which the government of South Africa has put in place to promote an equal-opportunity economy. The goal of BBEEE is to empower previously disadvantaged or discriminated against people the ability to regain the lost ground as a result of their discrimination.

      It is important to note the overall goal of the BBBEE programme is to create the country’s best possible economy. Naturally, this is only achievable through inclusion where all citizens are contributing in equal measures.

      There are a number of small loans available to BBBEE-certified businesses only, where a business’ BBBEE scorecard is based on the following criteria (with their respective weighting): 

      1. Equity ownership (25% weighting)
      2. Management control (15% weighting, 4% bonus possible)
      3. Skills development (20% weighting, 5% bonus possible)
      4. Enterprise development (40% weighting, 4% bonus possible)
      5. Socio-economic development (5% weighting)

      Small business loans for agriculture/farming

      Farms and agricultural businesses work in cyclical industries. Mother nature controls the production line. This can make cashflow and planning more challenging than for other types of business. Swoop understand the ebbs and flows of working with the land and our lending partners have specialist loan products for farms and agricultural businesses to overcome dips between the harvests.

      Borrow up to R10m and more to cover cash flow gaps, buy livestock or machinery, make tax payments, hire more staff, refurbish your premises, or make new investments. Plant the seeds to keep your farm growing.

      Can I get a small business loan with bad/no credit?

      Yes. Swoop’s pool of specialist lenders provides loan products designed for borrowers with less than perfect credit. These include merchant cash advances – where lenders provide funding for businesses that receive payment via a credit card terminal – and secured loans, where the borrower provides collateral, (such as real estate) to protect the lender from loss.

      Even if you have been rejected elsewhere, Swoop may still be able to provide the funding your business needs. Register your business to find out more.

      Can I get a small business loan without collateral or a guarantee?

      Yes. If your credit is strong, you may qualify for an unsecured loan, or, if your business receives payment via a credit card terminal, you could consider a merchant cash advance. This type of loan is ideal for those with poor credit. The lender provides a lump sum that’s repaid from customer card receipts. Repayments are made on a daily, weekly, or monthly basis and as a fixed percentage of card payments.

      Does my business qualify?

      Although no two small business loans are alike, Swoop’s pool of lenders have loans for almost every type of organisation and almost every type of situation. Even if your business has been rejected for a loan elsewhere, we may still be able to provide you with the funds you need.

      How do I apply?

      Swoop provides small business loans for all types of organisation – from start ups, sole traders, and contractors to companies with up to 200 employees. Ask for as little as R10,000 all the way up to R10m and more with our discreet application process. Give your business the funding it deserves. Register with Swoop to get started.

      Written by

      Alastair Woods

      Alastair is South African and has a depth of experience in small business financing and strategy. He has led the launch and development of several successful ventures related to fintech, biotech and agriculture. Alastair studied economics and finance at the University of Cape Town, and then went on to complete his Masters at the University of Edinburgh.

      Not sure if your small business qualifies for Government support? Register with Swoop to find out more.



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