A business term loan advances a fixed amount repaid in set instalments over an agreed period, usually to fund equipment, premises, expansion or a specific project. It is assessed on the trading record and cash flow of the business rather than on the owner’s salary.
Because the lender is underwriting a business, the documentation burden is heavier than for a personal loan, and most lenders will still want personal surety from the owners.
Eligibility Requirements at a Glance
Lenders differ, but the following are near-universal for a term loan to a South African business.
- The business must be registered with the Companies and Intellectual Property Commission (CIPC), or be a registered sole proprietorship or partnership
- A trading history — commonly at least 12 months, and often longer for larger amounts
- A business bank account in the entity’s name
- Tax affairs in order with SARS, usually evidenced by a tax compliance status PIN
- Owners and directors 18 or older with valid identification
- No unresolved judgments against the business or its principals
Income and Affordability Requirements
Approval turns on whether the business generates enough surplus cash to service the instalment after its existing commitments.
Lenders typically look at turnover stability across recent months, gross and net margin, the size of existing debt service, and the seasonality of the business. A single strong month does not establish capacity; a consistent pattern does.
Where the loan is guaranteed personally by the owners, the owners’ own affordability and credit records are assessed as well. The Act requires the credit provider to complete an affordability assessment before granting credit: verify gross income, subtract statutory deductions such as PAYE and UIF, subtract the minimum living expenses set out in the affordability assessment regulations, and subtract existing monthly debt repayments. Lending without that assessment is reckless lending and is prohibited.
Credit and Financial Requirements
The credit assessment covers both the entity and its principals. A commercial credit bureau record, trade references, supplier payment behaviour and the directors’ personal bureau records all feature.
The agreement is regulated by the National Credit Act 34 of 2005 and the provider must be registered with the National Credit Regulator (NCR). You can verify registration free of charge at ncr.org.za.
Note that the National Credit Act does not apply to every business loan. Juristic persons above the prescribed asset value or annual turnover threshold fall outside its protection, which means the affordability and disclosure rules may not apply to a larger company’s loan. Ask the lender in writing whether your agreement is NCA-regulated.
Security is usually required. That may be a bond over property, a notarial bond over movables, a cession of debtors, or personal suretyship from the directors. Understand exactly what you are pledging before signing.
Documents and Verification Required
Expect to submit a full pack. Missing financials are the single most common cause of delay.
- CIPC registration documents and a current company profile
- ID documents of all directors, members or partners, and proof of residence
- Six to twelve months’ business bank statements
- Latest annual financial statements and year-to-date management accounts
- SARS tax compliance status PIN or tax clearance
- A business plan and cash flow forecast covering the loan term
- Details of existing loans, leases and security already granted
- Proof of the shareholding or ownership structure
How to Apply and Improve Approval Readiness
Apply through your business bank, a development finance institution, or a registered non-bank business lender. Where the purpose is equipment or property, asset-backed finance is often cheaper than an unsecured term loan.
- Get your financials up to date before applying — stale accounts weaken the whole application
- Match the loan term to the life of the asset being funded
- Show the specific use of funds and the return it is expected to generate
- Clean up the business bank account: returned debit orders and constant overdraft excesses read badly
- Compare against SEFA, the IDC and the National Empowerment Fund, whose terms for qualifying businesses can be better than commercial lending
- Ask for the full cost including initiation and monthly fees, not just the rate
Frequently Asked Questions
How long must my business have traded?
Most commercial lenders want at least twelve months of trading and bank statements to match. Some start-up funding exists through development finance institutions, but it is assessed differently and usually needs a detailed business plan.
Will I have to sign personal surety?
For small and medium businesses, usually yes. Suretyship makes you personally liable for the debt if the business cannot pay, so understand the exposure before signing.
Is a term loan better than an overdraft?
They solve different problems. A term loan suits a fixed, once-off need repaid over time; an overdraft suits fluctuating working capital. Using an overdraft to fund a long-term asset is expensive.
Does the National Credit Act protect my business?
Not always. Juristic persons above the prescribed thresholds fall outside the Act. Ask the lender to confirm in writing whether your agreement is regulated.
Thresholds, rates and documentation lists differ substantially between lenders and change over time. Confirm current requirements directly with the lender or development finance institution before you apply.