By: Guest Thought Leader, Valentine Jingura, Head of Pricing for FNB Business
A business credit card forms part of several unsecured credit products offered by banks to help businesses manage daily operations, working capital and cash flow shortages.
Taking the time to understand what banks look for when accessing an application for a credit card or limit increase can help SMEs increase their chances of approval.
There are common criteria that financial institutions and banks consider before a business credit card/limit increase can be granted:
- An existing bank account – often, the first consideration is for the applicant to have an existing business bank account that is in good standing before a credit card can be offered.
- Monthly payments – banks want to determine whether the applicant will be able to keep up with the minimum monthly instalment payments, should they use the entire amount allocated on the credit card.
- Financial records – businesses that have just started out and do not have adequate financial statements may be required to provide additional business information, such as cash flow projections and estimated monthly spending. This enables the bank to make an informed decision, based on the information at hand.
- Credit behaviour – although there isn’t a credit bureau for businesses in South Africa, lenders use any information at their disposal to understand how the business handles its financial affairs and honours its obligations to creditors. A good record always works in the business’ favour.
Furthermore, as a sole proprietor, mismanaging your personal financial affairs may impact the final decision from the bank. Part of this reason is because a sole proprietor is not recognised as an independent legal entity and the owner is legally liable for all the business’ debt.
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Directors associated with the business also need to have good credit records.
- Suretyship – depending on the legal structure of the business and its credit profile, the directors of the company may be required to sign surety for payment of the credit card debt – in case the business fail to meet its obligations. This often forms part of a banks’ risk mitigation processes.
Remember, before applying for a credit card, ensure that you are choosing the right form of credit for the business’ needs.
