How much interest will the bank charge me if I take up credit to start or grow a business?
According to Lee Bromfield, CEO of Core Lending at FNB Business, this is a typical question FNB often gets from entrepreneurs.
“The answer is simple; a bank cannot determine your interest rate until your application has been processed for approval. The main reason is that interest rates are predominantly calculated on individual merits, because the risks from business to business are significantly different,” he says.
Even though banks may not be able to determine your interest at face-value, the process of establishing one’s payable interest is straight forward. The key factor is the credit repayment profile of the business owner and/or a compelling business case as well as other supporting material. Based on these elements, a bank should be able to advise the entrepreneur whether they can potentially grant credit, how much credit payable over what period and at what interest rate.
Over the years, the credit process has evolved for the better. Banks have been bringing down the cost of granting credit by introducing slicker credit review processes, such as: encouraging businesses to start using online banking channels. Bringing down the cost has enabled banks to price more competitively.
Bromfield says, “Whilst the systems have improved, some of the fundamental issues persist and need equivalent commitment from all role-players. Amongst the main issues is the education that needs to go hand-in-hand with providing or accessing credit. Additionally, we need better co-operation between credit grantors to get the full picture of a business that is applying for credit. There are still many credit providers who do not submit relevant information to the bureaus on businesses.
“It is in the best interest of entrepreneurs and credit providers to have accurate information on which credit decisions are based. There is a need to reduce the gap by educating each other about the pros-and-cons of the credit process and banks are increasingly working closely with entrepreneurs to help them understand lending processes,” concludes Bromfield.
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