Most funding advice focuses on getting the money. Far less gets said about what to do once it actually lands in the business’s account, and that gap is where a lot of good funding turns into a bad outcome.
Good reasons to take on additional funding
Expansion, working capital, a partner buyout or an acquisition are all sound reasons to access financing. Tapping into cheaper funding specifically to settle a more expensive existing facility can also directly improve profitability.
When taking on debt is a bad idea
Using debt to cover ongoing operating costs like salaries or rent is rarely wise, unless it genuinely bridges a short-term liquidity gap. Borrowing to service existing arrears, effectively paying one lender with another lender’s money, and borrowing during a genuine emergency unless absolutely necessary, are both patterns worth avoiding.
The first thing to do once the money lands
If the funds are not being deployed immediately, place them in an interest-bearing account or money market facility rather than letting them sit idle in a standard transactional account.
Conversations to have with your accountant straight away
The right conversation depends on the purpose of the funding, but for a lending facility specifically, get clear on the accounting and tax treatment, the timing of interest payments, and whether cash flow management is solid enough to meet the repayment schedule.
The five mistakes SME owners make most often
- Taking funding from the first available funder without exploring the alternatives.
- Not fully understanding the terms and conditions of the product.
- Choosing the wrong financial product for the business’s actual needs.
- Not properly assessing whether taking on more financing makes sense at all.
- Underestimating the cash flow impact of servicing the new facility.
What to do instead
Understand your actual capital and debt requirements against realistic growth and budget forecasts before shopping for funding. Match the financial product’s price and term to the business’s genuine risk profile, read the terms closely enough to catch hidden costs like early repayment penalties, and keep cash flow forecasting current so repayment never becomes a surprise.
Frequently asked questions
Should a small business ever use debt to cover salaries or rent?
Generally not, unless it is a genuine short-term liquidity gap rather than a recurring pattern of using debt to cover operating costs.
What should happen to funding the moment it is received but not yet needed?
It should go into an interest-bearing account or money market facility rather than sitting in a standard account earning nothing.
What is the most common mistake SME owners make when securing funding?
Taking the first offer available without comparing it against other funding options, terms and providers.
Getting funding is only half the job
How that capital is managed once it arrives determines whether it actually improves the business or simply adds a new repayment obligation on top of existing pressure.
Further reading: Government Funding for Small Businesses in South Africa | Department of Trade, Industry and Competition for official small business funding information
Originally published in June 2019. Updated September 2026 to tighten this guidance from Retail Capital on spending SME funding responsibly. The underlying principles remain sound.
