Many SMEs tend to overlook or underestimate the significance of clearly understanding why their business may require credit and the available credit options offered by banks and other funding providers.

The reality is that business owners have variant perspectives for the usage of credit; some believe that the primary purpose of credit is to alleviate immediate financial pressures, while others may never consider using business credit due to concerns about the perception of high fees and interest rates, fear of debt, or a preference for self-funding. A limited understanding of how business credit can be leveraged for growth might also contribute to the hesitation.

“In the dynamic landscape of business, the strategic use of business credit is not merely a back-up plan or financial manoeuvre; it is a pivotal tool that could shape your business’s trajectory of growth, resilience and innovation,” says Louise Naidoo, FNB SME lending product head.

By taking the time to craft a fit-for-purpose financial strategy, entrepreneurs are setting up their businesses for long term success as:

  • You will enhance your understanding of when and why funding is required.
  • Your business funding solution will align with your business goals.
  • You will enhance your chances of obtaining the right business funding solution.
  • You will be able to plan ahead and build a relationship with the bank.

“Each business will have unique funding requirements and the specific use of credit will vary based on factors such as the business’s growth cycle, operational needs, industry requirements and your particular business objectives,” adds Naidoo.

A few good uses of credit are:

  • To fill cash flow gaps when you need it, covering day-to-day operational expenses, such as inventory, payroll, and utility bills.
  • To grow or expand your business, whether by opening at a new location, entering new markets, or launching new products or services you might need credit to fund the costs. “Expansion initiatives often require upfront investment in equipment, marketing, hiring additional staff, or securing larger office spaces. A business loan or business revolving loan typically works well for these, especially if you might need access to the amount already repaid, later,” explains Naidoo.
  • To invest in technology infrastructure, software, or customized systems to improve your business productivity, automate processes, or enhance your customers’ experiences like enabling e-commerce capabilities. This helps businesses spread costs over time, while ensuring they have the necessary technology assets to operate efficiently.

An overdraft limit on the back of a transactional business account often works well in instances where services are delivered first and you are only paid after or making bulk stock purchases for busy events like Black Friday, to help you with extra cashflow needed.

“By understanding the strategic uses of credit, businesses can not only sustain growth but thrive in an evolving economic landscape, laying a foundation for a resilient and prosperous future, “she concludes.