If you have made the decision to raise finance for your business in your personal capacity, then it is important to understand the criteria used by lenders to assess the application.
These are the main areas they check:
Your credit report contains a wealth of information about your financial actions and it is one of the first checks that lenders look for. The credit record shows a history of the type of accounts you have and how you pay them. Lenders are particularly interested in your payment history as this shows whether you take responsibility for your debts.
Understanding your credit report can be confusing, especially if you’re reading it for the first time. Here is a breakdown of the types of information contained in your report:
It is a good idea to regularly check your credit record. You want to ensure it is up to date and accurately reflects your credit track record. Not only will this help you to make better-informed decisions when you apply for credit, but it will also identify if you are a victim of identity theft. If you spot accounts you know that you haven't opened, this is a potential identify theft issue and you need to instantly report it.
From the lenders point of view, anyone earning a steady income is a better loan prospect that someone who only earns money erratically. This is one of the key reasons why entrepreneurs are encouraged to pay themselves a salary as soon as the business is generating sufficient money.
Lenders are nervous of people who can only show an erratic income pattern. If they do decide to approve a loan to someone not earning a salary, they are likely to significantly increase the amount of collateral required to make sure they can recover the loan and interest monies.
The National Credit Act (NCA) forces lenders to check that the loan applicant has sufficient money to repay the loan. They will request that you complete an income and expenses document – this is usually done together with the lender who checks expenses against your bank statements to make sure that all deductions are included. They are looking to see whether you have sufficient surplus cash at the end of each month to repay the loan. If you don’t, your loan application is likely to be refused.
A statement of assets and liabilities literally lists items that you own (of a capital nature such as house, car, other property etc.) and what you owe (bond, car finance etc.) It also includes a list of any personal sureties you have already signed.
This is important for lenders as if you were intending to use your home as surety for the loan, they want to check that you haven’t already signed surety for previous loans. If this is the case, they are unlikely to consider the loan application.
Once again you need to keep detailed records of personal sureties you have signed, repayments you have made and the cancellation of the surety if the loan has been paid off. This is critical information that can help you access finance as you can provide to the lender that the debt has been repaid and the surety cancelled.
There are a host of small micro finance companies willing to loan money without asking too many questions. Two things are worth checking if you are considering using a smaller lender:
Smaller lenders are often willing to take bigger risks and as a result charge significantly higher interest rates than the larger finance organisations. This is how they manage to keep their businesses going!
However, beware of companies that require you to pay an upfront fee before they will finalise the loan. Loan administration fees are not uncommon – however, this fee usually forms part of the loan itself. So before you pay any money, check the organisation’s registration with the Companies and Intellectual Property Commission (CIPC), the National Credit Regulator (NCR) and the Finance Services Board (FSB). The finance industry is heavily regulated and you must check that the company has registered as required by law. If you cannot find their details on these sites, don’t do business with the company.
Gathering the following documents before the application can save time. You will need:
Finfind provides its services free of charge to businesses seeking finance. Our primary purpose is to link SMEs with all the relevant finance providers and finance products that match their funding needs. As a matching service we are not required to be a registered finance provider as we do not loan money directly.