Managing a business may require additional capital to expand. A business loan can assist you whether you are purchasing inventory, growing your business operations, or paying for unexpected expenses. However, before committing to debt, it is important to understand the terms and conditions of borrowing the loan.
In South Africa, the National Credit Act (NCA) is the law that regulates all credit agreements, including business loans. Knowing how it works can save you from trouble and help you make wiser financial decisions.
The NCA, which became effective in March 2005, is a pivotal piece of legislation for businesses involved in credit provision. It streamlines previous disparate laws under a unified framework, ensuring credit transactions are fair, transparent, and equitable. This Act is essential for companies offering credit or lending money, including banks, micro-lenders, and retailers.
Broadly, the Act aims to reduce reckless credit behaviour, both by credit providers and consumers, and the level of over-indebtedness in South Africa.
Key Principles of the NCA for Business Loans
Responsible Lending
Before a loan is granted, lenders need to ensure that your business can afford to repay it. This implies that they will audit your business revenues, costs, and any other debts. This is aimed at avoiding over-indebtedness.
Clear Information
NCA also requires the lenders to provide you with comprehensive and understandable information on your loan. This includes interest rates, repayment terms, and any risk involved. This information must be provided to you in writing, so that you may know what it is that you are committing yourself to.
Credit Checks
Lenders are allowed to check your credit history before giving you a loan. They will check your credit bureau records to check whether you pay off your debts on time. A poor credit record does not always mean rejection, but it may affect the terms of the loan.
Right to Know and Challenge
You have the right to know how the lender made its decision. If you think the loan terms are unfair, or if the lender did not follow the rules, you can challenge the agreement. The NCA is the authority that oversees complaints and disputes.
Steps to Navigate the NCA When Applying for a Business Loan
Check Your Credit Profile
Check your credit report with one of South Africa’s Credit Bureaus before you apply for a loan. This will provide you with a clear picture of your credit history and will allow you to correct any errors. Correcting mistakes will help you have a higher chance of approval.
Understand Your Loan Requirements
Think about the amount of money you need and why. Have a clear plan of how you will use the funds and how you will repay the loan. Lenders are likely to approve loans when they see a good strategy plan.
Compare Lenders and Loan Terms
Not all lenders are the same. Compare interest rates, fees, and terms of repayment offered by various institutions and seek loans that fit your business size and income.
Read the Agreement
Read the loan agreement before signing any document. Look into the total cost of the loan, the monthly payments, and the penalty for late payments. Inquire when something is not clear. It is important to remember that you are under the NCA and you need to be aware of your rights.
Seek Professional Advice
In case there is anything that you are not clear about in the process of acquiring loans, you can consult a financial advisor or an accountant. They can go through the NCA rules, the risks, and how you can choose a loan that is most suitable for your business.
Keep Records
You should keep copies of your loan agreements, receipts of payments, and any communication with the lender. This will help in any dispute, and when you are expected to show that there was repayment.
What are the Consumer Rights in Terms of the National Credit Act?
The NCA safeguards consumers by providing them with specific rights when dealing with credit. These include.
- The right to apply for credit
- The right to be protected against discrimination in the granting of credit
- To be informed why credit has not been granted, you should ask.
- The right to receive a free copy of your credit agreement
- The right to receive a credit agreement in plain and simple language
- The right to have your personal and financial information treated confidentially
- The right to understand all fees, costs, interest rates, the total instalment, and any other details
- The right to say no to an increase in your credit limit
- The right to decide whether or not you want to be informed about products or services via telephone, SMS, mail, or e-mail campaigns
- To apply for debt counselling, you should be overwhelmed by debt.
Understanding the NCA is important for any small business owner looking for a loan. A business loan may help your business grow, but it comes with responsibility. Follow the NCA rules, borrow wisely, and your business will be better positioned for long-term success.
