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Match the instrument to the need

Using the wrong facility is one of the most expensive mistakes a small business makes — frequently costlier than the rate itself:

• Invoice discounting — you have delivered and invoiced; borrow against money already owed. Priced substantially on your customer's reliability, which helps if you supply strong buyers;
• Order or purchase finance — a confirmed order needs stock. Self-liquidating: a specific event repays it on a known date;
• Asset or equipment finance — the asset secures the borrowing, so the term matches its useful life;
• Term loan — expansion repaid from future earnings over years;
• Overdraft — genuine short-term timing gaps only. An overdraft you permanently sit at is a term loan wearing a friendlier name, and priced worse.

The classic error: funding a long-lived asset with short-term working capital. Repayment falls due long before the asset has earned it back, and the business is squeezed.

Do the arithmetic on the deal, not the facility

On short-cycle borrowing the decisive test is not the rate — it is whether the transaction's margin exceeds the finance cost.

Write it down: if a job yields SDG 20,000 of profit and three months of financing costs SDG 9,000, you have handed 45% of the job to the lender. Sometimes that is worth it — to win a customer or keep a line running. Often it is not. The businesses that use credit well run that calculation on every deal rather than on the facility as a whole.

And whatever you are quoted, get the total amount repayable in writing, including all fees and any compulsory insurance. Then ask what early settlement saves.

What lenders assess

1. Bank statements, usually 6 to 12 months. This is why a separate business account matters from day one — without it, no lender can assess you and you cannot tell whether you are profitable;
2. Financial records — management accounts, and formal statements for larger facilities;
3. Tax compliance, which is frequently a hard gate. Fix it before applying, not during;
4. Security, and very commonly a personal guarantee from the owners. Read that clause carefully — it puts your personal assets behind the company's debt, and limited liability protects you far less than most owners assume;
5. Trading history — most lenders want a minimum period of operation.

Safer growth, in order

1. Reinvest profit — slower, and it never bankrupts you;
2. Get paid faster. Deposits upfront, shorter terms, and actually chasing what you are owed. Most small businesses have a collections problem rather than a funding problem;
3. Negotiate supplier terms. Trade credit is frequently the cheapest working capital available and is routinely under-negotiated — ask before you borrow;
4. Self-liquidating credit against a confirmed order or issued invoice;
5. Term borrowing last, and only against a plan you have tested.

Look beyond the obvious lender

Most markets have development finance institutions, government-backed SME schemes or donor-funded facilities offering terms commercial lenders cannot. They are chronically under-claimed because owners assume they will not qualify.

Ask your bank directly whether any concessional or guaranteed facility applies to your sector — and ask by name if you know of one. It is a free question with an occasionally large payoff.

Frequently asked questions

What rate should I enter?

A quoted rate, and confirm whether it is monthly or annual — the difference is roughly twelvefold and it is the most expensive misunderstanding in business credit.

Will I have to sign a personal guarantee?

For most small-business 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.

Should I borrow to grow?

Borrow against a confirmed order or issued invoice — a specific event on a known date — rather than against hoped-for sales. Growth funded by optimism is how businesses fail while busy.

Business or personal loan?

Keep them separate. Funding a business with personal consumer credit puts your household income behind business risk, and consumer credit is usually more expensive.

How do I improve my chances?

A dedicated business account with clean statements, tax affairs in order, up-to-date records, and a specific request: how much, for what, repaid from what.

Rates, fees and eligibility vary by lender and market and change without notice — confirm directly. General information, not financial advice.