What every SME needs to know about using credit

Small and Medium Enterprises (SMEs) have been navigating a tougher economic climate over the last five years and while South Africa’s outlook is looking positive, it’s important to acknowledge that the challenging cycle is by no means behind us.

In spite of the timely interest rate respite announced by the SARB in March 2018, South Africa has since seen the rand weaken, coupled with a substantial rise in fuel prices. These are quick reminders that our economy is still in the midst of a tough cycle which requires SMEs and consumers to plan properly and tread with caution.

Daniel Kaan, CEO of Business Core Banking at FNB Business says, “The current economic context should influence the way in which SMEs manage their credit needs because these businesses are the most vulnerable in tough economic cycles compared to larger enterprises. While it may be difficult to predict with certainty the phase of the local economy, the focus for SMEs should be to ensure that their businesses have the right credit mix, regardless of the economic cycle.”

Kaan outlines key areas that SMEs should consider when reviewing their credit needs:

Identify the need:

SMEs typically operate on tight budgets and for the most part, many are quick to seek credit when more cost containment could go a long way. It’s important for every small business to be distinctly clear about the need for business credit.

Understand the available credit mix:

Many businesses are aware of a Business Loan or a Business Overdraft but very few are aware that a Business Revolving Loan as a line of credit might be the best suited option to address the business need.

Use but don’t abuse:

Access to credit is great for small businesses that have mastered the art of managing such credit. SMEs must ensure that credit facilities are managed correctly and credit obligations are met which is essential in finding the right balance.

Credit can help with cash flow:

Some businesses use credit as an effective cash flow management tool and for short-term funding needs; others simply to expand their mix of business credit for the purposes of building a business credit track record. Either way, credit can be used to safeguard against pressure on cash flow in tough times.

FNB Business has several business credit solutions and one innovative solution is the Business Revolving Loan. “It offers greater flexibility as business clients can conveniently apply via FNB’s Online Banking for Business and funds can be used for various business needs. The consideration from a business when deciding to make use of credit should always be underpinned by affordability of the loan and whether it addresses to the business need,” says Kaan