FNB SME lending Product Head, Louise Naidoo On “Finding the right funding solution for your business”

 One of the biggest constraints to SME development is a lack of financial resources to start, sustain and grow businesses. For many small and medium-sized businesses, a big challenge is finding the right funding solution to navigate financial obstacles and steer their ventures towards success. 

As a general guideline, when determining the right funding solution for your business, it is important to assess the following aspects relating to your business:

• Strategic goal alignment: Make sure your cash flow predictions align with business goals by outlining detailed short and long-term goals. Thereafter, carefully assess the financial need and purpose behind seeking the funds, whether it is for startup capital, expansion or addressing working capital gaps.
• Risk tolerance: Understand your comfort level with uncertainty. Opt for more stable options with fixed terms if you prefer predictability. Riskier funding options for SMEs might involve venture capitalists or angel investors. While this could provide significant infusion of capital, it typically involves giving up a portion of ownership or equity in the business. It is riskier as it links the business’s success directly to investor’s expectations.
• Repayment terms: Make sure you choose a funding solution where the repayment aligns with your business’s cash flow. Opt for fixed repayment schedules if you prefer a predictable financial commitment, suitable for stable revenue streams. Consider more revenue-based repayments if your income varies. Be aware of early repayment penalties or repayment adjustments linked to your performance. 
• Interest rates offered: Understand the difference between fixed and variable interest rates. If your business has a steady cash flow and a positive credit history, you may qualify for lower interest rates. 
• Credit worthiness: Make sure your business accounts are in good standing and maintain a healthy credit score in your personal capacity as well.
• Application process: Make sure you understand the approval criteria and the process of obtaining the funds – how easy is the process and how soon will the funds be made available if approved.

“By considering these practical tips, SME owners can choose funding solutions that align with their short and longer-term financial goals and capacity,” says Louise Naidoo, FNB SME Lending, head of product.

Short term lending provides businesses with swift access to capital and is a valuable resource for managing day to day operations, seizing opportunities, or navigating unexpected expenses.  

• The FNB Business Overdraft provides extra funds linked to your business account, ensuring that you can make payments even when there are no cash funds available, avoiding penalty fees and additional charges. Once in place, you have access to the funds immediately, and you only pay interest on the portion of the limit you have used. 

• The FNB Business Credit Card serves as a versatile tool for short term lending and spending, offering an interest-free period of 35 days and the ability to control spending amounts per card, separate from the main business transactional account. Businesses can start with a smaller limit and gradually build up to more. 

“On the other hand, longer term lending solutions such as business loans, provide stability, lower monthly repayments, and support for larger scale projects or investments,” says Naidoo.  

• The FNB Business Revolving Loan offers fixed monthly repayments, which makes it easier to budget, and it allows businesses to gradually reduce both principal and interest over time, promoting financial stability. This funding solution also allows you to re-access funds up to the original loan amount each time 15% of the loan is repaid, without the need to reapply for credit.
• The Energy Bounce Back Loan Guarantee Scheme is a collaboration between government and FNB to help businesses mitigate the impact of power supply challenges. The scheme is designed to assist businesses and households through financial incentives for the installation of rooftop solar-generated energy and energy storage assets. 

Other fit-for-purpose funding solutions to consider are FNB Commercial Property Finance, Asset Based Finance for business assets, and Structured Finance Solutions such as trade finance, invoice discounting, leveraged finance, guarantees and debtor finance.

“Ultimately, choosing between a short term or long-term credit product depends on your business needs, financial goals and what you require the funding for. One of the most practical ways to make informed decisions about how much external funding your business may require and when you will need it, is through cash flow forecasting,” says Naidoo. 

Cashflow forecasting is a critical tool for SMEs to manage their financial health effectively. It basically involves projecting expected cash inflows and outflows over a specific period, usually a year. 

“When approaching lenders for funding, they will assess your business’s ability to repay loans and debt on time. When a business maintains a healthy cash flow and pays bills on time, it enhances its reputation as a reliable borrower, positively impacting its risk profile (or credit score) and increasing its chances of getting the right credit product or funding amount it needs,” says Naidoo.

Key dos and don’ts to guide businesses in maintaining a good credit record, include:

• Manage our cash flow to avoid excesses on your accounts.
• Ensure that you have sufficient funds to cover your debit orders.
• Keep all accounts to date and avoid arrears.
• Check your credit bureau information regularly and maintain a healthy credit record.
• Ensure that your business income is in your business account, not in your personal account.
• Ensure you understand debt counselling and/ or debt review and the impact on your credit score and ability to easily get future funding.

“Partnering with a reputable credit provider like FNB, which can assist with and simplify the application process, greatly improves the chances of accessing the right funding solution for your business,” concludes Naidoo.

To read more about the SME White Paper, please Click here.