Small business owners turn to all sorts of options when looking for business funding. In many cases starting with family, friends or their bank. But if that doesn’t work out they often look to alternative options for assistance. This is when reckless lenders can take advantage of under pressure business owners who need cash quickly, causing long term damage to the businesses they are supposedly trying to help.
At SASFA we believe that responsible funding is about always acting in the customer’s best long term interest. To act in a responsible manner a funder needs to understand accurately the amount of funding (debt) a business can afford to take on, offer transparent terms and conditions, and be ready to support the borrower appropriately during the repayment cycle.
Technology assists accurate decision making
SASFA members are at the forefront of a new breed of business funding providers using technology to make more accurate credit assessment decisions. AI driven technology, designed specifically with SMEs in mind, can draw on an extensive range of data sources to assess a business’s true financial health, as well as its creditworthiness. The outcome is a fast, and precise, recommendation on the amount of funding a business can afford together with the most suitable repayment profile.
Avoiding unethical practices
An essential component of responsible and ethical funding is avoiding the practice known as ‘stacking’. ‘Stacking’ is when a lender will provide funds even when a business has outstanding funding or loan balances with other short term lenders. Having multiple loans at the same time can quickly lead to over indebtedness, with the total repayment amounts crippling a business’ cash flow and its ability to invest in activity outside of servicing debt. In the worst cases, ‘stacking’ can ultimately lead to an SME’s demise.
SASFA is strongly opposed to any form of ‘stacking’, and members actively work together to prevent this occurring within the membership base.
Building long term partnerships
Strong, long term, relationships between funding providers and business owners also facilitates responsible lending practices. As funding providers interact with and learn more about a client’s business (and its financial performance), this enables them to not only provide additional funding that is well suited to the business’ unique needs, but also to provide relevant repayment support if that is ever needed. Business owners should always seek funding from lenders who can demonstrate a track record of building long term partnerships with their clients. This is particularly relevant in times of economic volatility.
Business owners also need to act responsibly
While it’s paramount that a lender should act in an ethical manner when deciding whether to provide funding to a business, it’s also important that the business owner approaches any funding application responsibly. This means being honest and transparent with regards to the information shared in the applications, as well as realistic in terms of the amount of funding requested and accepted.
It can be helpful for a business owners to ask themselves the following questions as they consider a business funding application:
- What specifically do I need business funding for?
- How will I put the funding to use and generate a positive financial return from it?
- Are the interest rates/funding costs fixed and if not what happens if they increase over time?
- What happens if circumstances change and I find my business bringing in less income or other costs increase? Can I still afford the repayments?
Lulalend provides a fast and transparent lending experience for SMMEs in South Africa. The company understands the funding challenges that local SMMEs face. Their products, driven by proprietary AI technology, are specifically designed to make it easier for small businesses to access vital working capital. Businesses can access up to R5M of funding within days.
For more information, visit www.lulalend.co.za