A Complete Guide to Personal and Business Loans in South Africa

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Personal and Business loans in South Africa have benefited many people to realize their goals.

For many businesses and people in South Africa, obtaining a loan can be a realistic choice for obtaining fast cash for both commercial and personal purposes. However, there is no such thing as a one-size-fits-all loan. Whether you are a seasoned entrepreneur with a cash-strapped firm or a rookie contractor searching for financing to get your project off the ground, you must analyze your financial needs to determine which sort of loan is best for you.

A loan is one of the most popular banking services. It may be used to pay for a variety of things and comes in a variety of forms. In most cases, the bank will authorize a loan and charge you interest on it. The loan must be repaid in Equated Monthly Instalments over a set period of time. Personal and business loans are two of the most prevalent forms of loans obtained by individuals. So, what exactly is the difference between a Personal Loan and a Business Loan? Let’s investigate.

Personal loans can be utilized for almost any purpose, whereas business loans give funding for building your business. How do you tell them apart? How would you determine which loan kind is best for your particular situation?

To assist you in making this decision, we prepared this complete Guide to Personal and Business Loans in South Africa.

Personal Loans in South Africa

With so many loan alternatives accessible these days, it might be difficult to choose the proper loan for your specific situation. Having said that, it is still critical that you understand why a loan is required and how it might help you. Whether you need a loan for personal reasons or for commercial purposes, you should think about all of your alternatives and how they can affect you.

A personal loan is frequently a quick and simple answer. The amount of a personal loan approved is determined by your credit history and personal financial condition. The personal loan interest rate is also determined by your credit score and your financial position. If they are solid, you may be able to get a loan with a reduced interest rate.

You will be required to produce proof of income, as well as proof of residency and your ID document.

Advantages of Personal Loan

  • Simple to implement
  • No security is required
  • Minimal documentation
  • Excellent source of emergency funds

Disadvantages of Personal Loan

  • Because it is a collateral-free loan, interest rates are substantially higher.
  • When compared to company loans, the loan amount is quite small.
  • To qualify, you must have an excellent credit score.

According to statistics, over 40,000 people in South Africa are looking for a personal loan each month. 

Features of Personal Loans in South Africa

Generally, Personal loans have the following features in South Africa:

  • Borrowing amounts range from R2000 to R300,000.
  • You can repay the money over a period of one month to 84 months (7 years).
  • The funds can be utilized for anything. Some individuals use them to repair their house or purchase a car, while others use them to restructure debt or pay for wedding expenditures. It’s all up to you.

How Do Personal Loans Work in South Africa?

When you want to get a personal loan in South Africa, the following processes are usually involved:

  1. Comparing Loans: There are several loans available. Each kind offers unique advantages and disadvantages as well as varied terms and restrictions. To pick the finest personal loan for you, you must first weigh your possibilities. Then compare them  before making any decision.
  2. Checking the Requirements to See If You Qualify: Once you’ve selected a product that matches your budget and situation precisely, the following step is to ensure that you have all of the necessary information and paperwork for the application process. You must also satisfy specific criteria, such as age and monthly income.
  3. Approaching the Lender and Making an Application: If you qualify, you can apply to the proper lender. This can be done online, on a Loan app, via phone, or by visiting a branch.
  4. Getting Approved and Agreeing to the Terms and Conditions: If your application is granted, you must accept the lender’s offer. The credit contract is an agreement between you and the lender. It includes information such as how much money you will get, the interest rate on the loan, and the period necessary to repay it. After the agreement is reached, the lender deposits funds into your bank account, ready for usage.
  5. Paying Back: Normally, debt is repaid in monthly installments. The overall cost of the loan determines how much each monthly payment will be. Other terms and conditions, such as early repayment penalties, may apply in addition to the period and monthly installments.

Types of Personal Loans in South Africa

Personal loans are available from a range of registered credit companies. Many variables influence which kind is best for you. These include your intended use of the funds, your monthly income, and your credit score.

Generally, the following types are available:

  • Secured Loans: A secured loan allows you to borrow money by using a valued item as collateral, such as your vehicle or home. You can borrow more money and get lower interest rates and fees if you use collateral. However, if the loan is not paid back as agreed, you riisk losing the asset.
  • Unsecured Loans: These loans have no security or guarantee requirements and are intended for broad uses.
  • Debt Consolidation: This type of loan can be used to pay off current debts. This leaves you with only one simple account to handle, which may save you money on interest and other fees.
  • Lines of Credit: These have a maximum credit limit. The amount you pay back is determined by how much you utilize. Lines of credit are also available for common usage.
  • Student Loans: These assist you in paying for your schooling and other connected expenditures.
  • Overdraft: Even if your bank balance is low, you can still withdraw funds from your account.

Personal Loan Interest Rates in South Africa

Your personal loan’s interest rate is set by the lender. You agree to this predetermined interest rate when you agree to the contract’s conditions. According to the National Credit Act Regulation, the maximum annual interest rate in South Africa is 27.50%.

Interest rates vary by lender. They can, however, be classified as fixed or changeable. In most cases, your lender will begin charging you interest as soon as the loan is deposited into your bank account.

What Is the Difference Between a Standard Interest Rate and a Comparison Rate?

In your quest for the finest personal loans in South Africa, you’ve most certainly come across the terms APR or Comparison Rate. APR stands for Annual Percentage Rate, this figure is always given as a percentage. The discrepancy between the interest rate and the APR may be explained in two ways:

  • The interest rate is the cost of borrowing money from a lender.
  • Interest and additional charges are included in the Annual Percentage Rate.

Depending on the lender, a service fee and a monthly admin fee may be included in the APR rates. The APR is always greater than the interest rate because of this. Additionally, the APR, which shows the overall cost of the loan, is more useful when comparing personal loans. Typically, comparison interest rates fall between 6.5% and 60% annually.

Should You Get a Personal Loan in South Africa?

Applying for a personal loan may be your only option if an emergency or urgent necessity arises. You might even utilize the money to advance your objectives and enhance your standard of living.

Nevertheless, wherever feasible, it is usually advisable to avoid taking out a loan.

How Do You Qualify for a Personal Loan in South Africa?

In South Africa, the general requirements are:

  • Minimum age of 18 years;
  • Employment or self-employment;
  • Regular monthly income; and
  • South African citizenship or a South African residency visa

What Documents Do You Need to Apply?

  • A valid South African ID;
  • 3 months’ pay slips or bank statements;
  • Proof of residence, e.g. water bill; and
  • For a secured loan, you need documents that show proof of ownership for the asset you’re using to guarantee the credit.

How to Make a Personal Loan Application in South Africa?

It is critical to review your options one more time before applying:

  • What amount do you wish to borrow?
  • Which monthly payments are you able to make?
  • Do you want a secured or unsecured loan? This is determined by whether you currently own an asset or want to use the credit to acquire one. If not, an unsecured loan could be a better choice.
  • Do you want a fixed-rate or variable-rate loan? A fixed-rate loan is the greatest option for precise budgeting because your repayments do not vary over the loan’s term. A variable interest rate, on the other hand, may offer lower interest rates if the interest rate falls.

Business Loans in South Africa

When seeking a business loan, there are several solutions available, each tailored to the needs of enterprises. You will very certainly be required to present particular documents to show the validity of your organization, as well as accounting records.

Business loans are only available for commercial purposes and cannot be used for personal use. A business loan can be unsecured or secured, with the latter requiring the use of your company’s assets as security.

Advantages of Business Loan

  • You gain from tax breaks.
  • Reduced interest rates.
  • There are several alternatives accessible, such as term business loans, regular business loans, and so on.

Disadvantages of Business Loan

  • To qualify for a business loan, you must have a strong business plan.
  • The application process is time-consuming.
  • Detailed documentation.
  • Collateral is required as loan security.
  • The requested amount may not be accepted. Most banks will only accept 70%-80% of your company loan request.

According to the South African Banking Association, access to SME finance has improved little in South Africa. Finding the right information is a challenge for many SMEs.

Decide on What You Need from a Business Loan

According to some analysis, SMEs in South Africa may pick among 146 lenders offering 328 various forms of business loans and finance. You might believe that having so many options make obtaining a business loan simple. In reality, it’s considerably more difficult. According to studies, too many firms are turned down because they ask for the wrong form of financing.

The first stage in the business loan application process is determining your finance requirements. You want to use your company loan wisely: to expand your SME. Begin by determining your company’s financial requirements.

How do I Qualify for  a Business Loan in South Africa?

While banks continue to be the primary suppliers of financing for SMEs in South Africa, the International Finance Corporation (IFC) finds that other lenders of business loans have begun to attract entrepreneurs looking for quick and simple methods to obtain capital. The IFC, a member of the World Bank Group, collaborates with the private sector in developed nations to provide access to economic opportunities.

The guidelines for company loans vary depending on the lender, as you’ll learn later in this article. Before you apply for financing, chat with the lender about what information they need so that you can obtain a response to your application as soon as possible.

We’ll go through the essential prerequisites here.

  1. Credit Score

What is your credit rating? In general, knowing your company’s creditworthiness is a good idea. However, it is especially vital if you intend to obtain a business loan in South Africa.

Lenders will make judgments based in part on your credit score. Lenders will obtain information about your credit history from credit bureaus once you complete your business loan application.

There are several factors that impact your credit score, including:

  • Your current debt levels
  • Your loan re-payment record

It is critical to have a strong payback history on long-term accounts. However, not every debt can be beneficial to your credit score. High-risk personal loans have a negative influence on your credit score. In summary, credit ratings are important, but they are not the only indications used by lenders to assess risk.

What’s a Good Credit Score to Get a Business Loan?

When it comes to company financing, personal credit ratings are heavily scrutinized. Actually, lenders often take into account more than just these personal credit ratings when determining your business credit score.

A low credit score personally, though, will work against you. A respectable personal credit score is often between 640 and 700. Also, better scores indicate decreased risk.

Listed below is a brief explanation of personal credit ratings (ranges may differ based on credit bureaus):

  • The highest score you can receive is 700+:  This score falls between very good and outstanding.
  • 660+: an excellent credit rating that gives you access to a variety of offers
  • If your credit score is between 620 and 659, you could have trouble acquiring financing, but you can still apply for a business loan.
  • Most lenders would consider a credit score below 620 to be high-risk. Rebuilding your credit before applying for a business loan could be worthwhile.

The warning is that your personal and corporate credit scores are separate and distinct.

When applying for a business loan, your personal credit score, along with various other evaluation factors, may be evaluated. Lenders are assessing your company. And your personal risk score is only one data point they may use when modeling your risk.

  1. Collateral

One of the most frequent issues SMEs encounter when looking for a business loan in South Africa is  lack of collateral. The lender will requires collateral as a guarantee that they will get their money back if you can’t repay your business loan. You authorize the lender to pursue legal action to recover any asset you pledge as security.

Without the lender’s express written permission, you CAN NOT sell that asset. The lender loses ownership of the item when the loan is fully repaid, so you are free to sell it if you choose.

Examples of physical collateral include:

  • Real Estate
  • Vehicles
  • Stock

A study of company financing in Africa discovered that because SMEs were seen as greater credit risk, banks often sought significant assets as security. Furthermore, the lender will frequently undervalue your assets. This is because the funder will be responsible for the costs of selling the assets. These costs include:

  • Administration expenditures, such as selecting which assets must be liquidated and interest fees.
  • Finding a buyer, such as auction or advertising expenditures.
  • Transfer of ownership, for example, depending on the asset, there may be administration involved in the sale.

The difficulty with this strategy is evident. Many SMEs lack tangible collateral. They do, however, have a healthy cash flow.

No collateral? You still have alternatives. Unsecured company loans are becoming increasingly popular among investors. If you have a purchase order, some banks will waive the requirement for collateral. In addition, most fintech lenders do not need collateral.

  1. Time of Operating

Almost every form of business loan source considers time in business as a vital condition. This often excludes new business owners. Fintech providers often have fewer severe standards. If you have a one-year trading history, you will fulfill the minimal criteria.

  1. Annual Revenue

The majority of business loan lenders will have minimal revenue criteria. This varies depending on the lender.

Business Loans Minimum Requirements

FNB business loan requirements

  • 12-months turnover in a business account
  • No unpaid debits on your account
  • Good personal credit rating

ABSA business loan requirements

  • Financial statements
  • Additional security might be required depending on your credit assessment

Nedbank cash advance requirements

  • Two years of operating history
  • Nedbank merchant for at least three months
  • Business turnover of R1m and above
  • One-year transactional history


  • Earn a monthly salary from your business
  • Sole traders not eligible

It’s time to submit your application once you’ve satisfied the basic requirements.

  1. Financial Documents

You must obtain the appropriate paperwork for the following step.

Although it may seem like the simple part, company owners often get turned down for financing for this reason.

We’ve organized the paperwork you require by business loan source.

We concentrated on loans sold exclusively to SMEs because business credit types differ from bank to bank. We examined Nedbank’s unsecured loans, which are dependent on your turnover, as an example.


  • South African ID
  • Three-month salary slips (only SMEs who get a salary from their business are eligible)
  • Three months’ bank statement


  • 6 months’ bank statements
  • Annual financial statements
  • Year-to-date management accounts
  • Cash flow statements
  • Income statements
  • Balance sheets
  • Business plan


  • South African ID
  • Notice of incorporation
  • Registration certificate
  • Shareholder certificate
  • 6 months’ bank statements (if you’re not an ABSA client)
  • All directors are to be present to sign the application


  • One-year transactional history
  • Pro forma invoice demonstrating intended use of funds, up to 70% of the advance value

Paying Back Your Business Loans in South Africa

It is recommended that you read the terms and conditions of the loan before submitting your application.

Consider the following: how long will you require the funds? If you believe you may need to pay off your loan fast, prioritize funding that does not have early repayment penalties. Inquire about the fees of early settlement or prepayment. Your finance must be as adaptable as your business. Can you arrive early? What if you only need the money for a few days?

Others, such as Standard Bank, will need three months written notice if you wish to settle early. You’ll also have to pay the accrued interest.

What Is Business Loan Interest Rate in South Africa?

As of February 2020, the prime lending rate is 9.75%. This implies that your salary frequently swings in tandem with the interest rate. The South African Reserve Bank’s Monetary Policy Committee sets the interest rate.

Some business loan in South Africa providers assessed a flat fee for company finance.

Applying for a Business Loan in South Africa

It’s tempting to consider the business loan application procedure as an impediment to reaching your objectives.

But this does not have to be the case. Begin by learning about your company. When and why do you require cash? You’ll be in the greatest position to get a company loan that drives your SME forward once you’ve properly answered those questions.

Final Thoughts on Business and Personal Loans in South Africa

Finally, the concept of a personal loan is straightforward: you borrow an agreed-upon sum and repay it in monthly installments with interest over a specified length of time. However, several forms of loans are available to meet a variety of purposes.

Personal loans are often short-term or long-term monetary advances. Some of them are same-day loans, which means that the loan is approved and the money is in your account within 24 hours or less. In South Africa, these loans range in size from R1,000 to R250,000, with payback terms ranging from 12 to 72 months. Repayments are often computed using an annual interest rate of up to 25%, however, this varies depending on the lender.

When it comes to business loans, it’s critical that owners prepare ahead rather than waiting until they need one.

The first step is to ensure that your company meets all regulatory and legislative obligations.

In South Africa, the most fundamental criterion for firms seeking finance is that they are registered. You can register your business online via the Companies and Intellectual Property Commission (CIPC) website, a CIPC-created platform that provides company registration and related services.

Another need is that your company be tax-registered. Many business owners find it difficult to ensure their company is compliant. To assist, business owners should use competent business advisers and small business accountants. Find out whether they can assist you in compiling the necessary documentation and positioning and packaging your application to achieve success.

Many criteria, such as time in business, financial health, credit score, and accessible collateral, will influence whether your application is successful and the sort of business loan you may obtain.


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