How do you go about starting your own Business?

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By Mzukona Mantshontsho


With the beginning of the year, lots of people make New Year’s resolutions and some want to start their own small business, or need help with their small business.

 So how do people go about this? Some people go to the bank, some to a friend or family member who has money, or some other kind of investor, perhaps a loan shark, cash loan companies, yet still others are using websites such as,, and indiegogo.comto raise funds or get ‘micro-loans’ to help them out. 

TransformSA spoke to CEO FNB Smart Loans Pieter Du Toit about getting a loan at First National Bank. 

When taking out a loan with your bank it is important to understand in detail exactly what will be required of you. From a distance all the terms can look confusing or difficult to understand, but this need not be the case. Here are a few important things to understand about taking out a loan.

 “One of the most important aspects to understand about your loan is its interest rate,” said Pieter Du Toit, CEO FNB Smart Loans.

“An interest rate is the cost you pay for borrowing money. It is calculated by the bank according to your personal risk profile and the current prime lending rate, which is determined by the South African Reserve Bank. This means that the interest you pay on a loan will be dependent, on amongst other things, your spending patterns and behaviour.”

Interest is calculated using a percentage, for example, if you take out a loan for R5000 and are given a rate of 12% interest a year, this means that you will pay approximately R600 interest on your loan annually. The total amount you pay on interest and other fees paid on your loan will be dependent on the amount of time you take to pay it off, which makes it important to pay extra on your instalments when you can and settle it as quickly as possible.

Interest on money you save works in the same way, except you are not paying the bank interest, but getting the interest paid to you for your saving. For example if your saving is R5000 and the bank offered you an interest rate of 12%, then you would receive an extra R600 on your savings rather than paying this to the bank if you took out a loan. Considering this, it is always better to save for a goal rather than borrowing. Loans should be reserved for times when you have no other option and need the money urgently, for instance a family emergency.

Another important question to ask in terms of your interest rate is whether it is fixed or linked. Fixed means the bank will keep your interest the same, no matter how the interest rate (Prime Lending Rate), set by the Reserve Bank fluctuates. Linked means it is linked to the Prime Lending Rate as set by the Reserve Bank and your interest will change as this rate changes.

Fixing your rate can be an advantage if you take out a loan during a time when the interest rate is low because should it go higher you will continue to pay the lower rate. The opposite also applies, if you fix your rate and the interest rate falls, you will find yourself paying higher interest than you could have been if you did not fix your rate. Before doing this however make sure that you have done adequate research and are aware of the risks involved.

“In understanding your interest rate, you should keep in mind that different types of loans will have a different rate. It will also vary depending on your individual profile which makes it worthwhile to approach your bank early on in the process to get a personal assessment. This makes it important to examine the different interest rates which will assist you in taking out the best loan for what you need. For example if you want to buy a car, compare the interest rate you would be offered, if you bought it using vehicle finance as opposed to buying it through a personal loan to establish which type of loan will offer you the most savings,” Du Toit said.

Other costs associated with loans in addition to paying interest are service fees, which are paid monthly and initiation fees, which can be paid once off, or charged over the lifetime of your loan. The initiation fee is the fee the bank charges to open up the loan, while service fees allow the bank to carry out admin related to your loan on a monthly basis such as providing statements.

When taking out a loan with a registered financial services provider, you will also be required to take out insurance to cover you against an unforeseen event arising. You will be offered insurance with your loan at a specified premium which will be added to your monthly repayments. If you choose not to take the insurance that the bank offers, you must supply proof to the institution from whom you are loaning money that you have a policy in place which offers you suitable cover for the bank, and should the need arise, your loan will be covered.

Insurance becomes particularly helpful when you are unable to pay your loan due to death, temporary or permanent disability or retrenchments. However, don’t take it for granted that you will be covered for all of these. Read through the Terms and Conditions of your insurance contract, so that you understand what you are covered for in more detail. Make sure you also understand what the repercussions of skipping payments will be on your insurance.

The Terms and Conditions should state this clearly. Some policies may be very strict and discontinue your cover if you miss one payment, while others may be more lenient with the number of payments you can miss. If you are unable to pay an instalment for whatever reason, make sure that you contact your bank for assistance immediately.

Understanding the type of loan you have applied for is also important as its terms may vary. For example the loan may be a revolving facility where you are able to borrow additional funds that you have paid into the loan should you urgently need money. Make time to make yourself aware of the conditions of such a loan. The terms of a student loan may also vary. Some banks may allow students to pay off only the interest on the loan while studying and once they have graduated and started working, to pay off the actual loan repayments in addition to interest. 

“Reading and understanding the terms and conditions of your loan and your insurance is absolutely vital before entering into any loan agreement. Stated in your contract should be the loan amount you have applied for, your monthly repayment, the interest rate you will pay, how long it will take you to pay off your loan, the insurance charges, service and initiation fees you will be liable for and the total amount you will end up paying on your loan. Ask as many questions as you need to and never allow yourself to be put under any pressure to sign your contract until you are clear and understand what it means. This will help you avoid unnecessary surprises at a later stage,” concluded Du Toit.



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