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Business credit is not covered by the NCA caps

An important difference from personal borrowing: the National Credit Act's interest caps generally do not apply to larger business loans. The NCA excludes juristic persons above an asset/turnover threshold, so a company borrowing at scale is negotiating in an open market — there is no 28% ceiling protecting you.

That cuts both ways. A strong business with security and a trading record can borrow at rates well below consumer credit. A weak file can be quoted rates a consumer would be legally protected from.

So the total cost of credit is entirely a matter of negotiation and comparison. Get every quote as a total amount repayable, including initiation and monthly fees, and compare like for like.

Match the instrument to the need

Using the wrong facility is one of the most expensive mistakes an SME makes — often costlier than the rate itself:

• Invoice discounting / factoring — you have delivered and invoiced; borrow against money already owed. Priced substantially on your customer's creditworthiness, which helps if you supply large, reliable buyers;
• Purchase order finance — a confirmed order needs stock. Self-liquidating: a specific event repays it on a known date;
• Asset or equipment finance — the asset is the security, so the term matches its useful life;
• Term loan — expansion repaid from future earnings;
• Overdraft — genuine short-term timing gaps only. An overdraft you permanently sit at is a term loan wearing a friendlier name, and priced worse;
• Merchant cash advance — repaid as a share of card takings. Convenient and often very expensive; convert the cost to an annual equivalent before agreeing.

The classic error: funding a long-lived asset with short-term working capital. Repayment arrives long before the asset has earned it back.

Do the arithmetic on the deal, not the facility

On short-cycle borrowing, the decisive test is whether the transaction's margin exceeds the finance cost. Write it down: if a contract yields R200,000 of gross profit and three months of finance costs R45,000, you have handed 22% of the job to the lender. Sometimes that wins the customer; often it does not.

What lenders actually assess

1. Bank statements — usually 6 to 12 months. This is why a separate business account matters from day one;
2. Financials — management accounts, and annual financial statements for larger facilities;
3. Tax compliance. A SARS compliance status is frequently a hard gate — and worth fixing before applying rather than during;
4. Security, and very commonly a personal surety from the directors. Read that clause carefully: it puts your personal assets behind the company's debt, and "limited liability" protects you far less than owners assume;
5. Trading history — most lenders want a minimum period of operation.

Look beyond the banks

South Africa has a genuinely wide funding market, and businesses frequently accept the first offer they find:

• Development finance — the IDC, NEF, SEFA and provincial agencies offer terms commercial lenders cannot, particularly for manufacturing, transformation and job-creating projects. Under-claimed because owners assume they will not qualify;
• Specialist fintech lenders — faster and often more flexible on trading history, at a price. Compare on total cost;
• Trade credit from suppliers — frequently the cheapest working capital available, and routinely under-negotiated. Ask for extended terms before borrowing.

Frequently asked questions

What rate should I enter?

Use a quoted rate. Business lending is commonly priced off prime (currently 10.50%) plus a margin reflecting risk and security — model a range if you have no quote yet.

Will I have to sign personal surety?

For most SME lending, yes. Understand exactly what it covers and for how long, and ask whether it can be capped or released once the business is established.

Do the NCA caps protect my business?

Generally not above the juristic-person thresholds. Smaller entities may be covered — but do not assume protection; negotiate and compare instead.

Is a merchant cash advance a good idea?

It is fast and flexible, and the effective annual cost is often far higher than it appears because repayment is expressed as a share of turnover rather than a rate. Convert it to an annual equivalent before comparing.

How do I improve my chances?

Clean bank statements through a dedicated business account, SARS compliance in order, up-to-date management accounts, and a specific request — how much, for what, repaid from what.

Prime is currently 10.50%. NCA coverage of juristic persons depends on asset and turnover thresholds — confirm your position. Development finance criteria vary by institution. General information, not financial advice.