Why am I declined for business finance?
With access to finance being a major challenge for entrepreneurs, this is a question which comes up regularly.
For many South African business owners, trying to access finance can feel frustrating and overwhelming. You may have a solid business, loyal customers, and clear growth plans yet still find yourself asking why funding feels out of reach.
In most cases, the challenge is not the business idea itself, but how your financial information is presented. Whether you are applying for working capital finance, DTIC grants and incentives, or business loans, funders want to clearly see how your business earns, spends, and manages money.
Know your capital raising goals
This post is not intended to be exhaustive – a short-term working capital facility requires very different financial controls and data to a strategic capital raise for capital expenditure (CAPEX). However, many of the principles will remain common.
For the purposes of this post, we are largely focusing on smaller working capital requirements for businesses who are juggling cashflow challenges or entering early growth stages.
The non-negotiables when it comes to applying for Working Capital
Most of the organisations offering Working Capital solutions and Trade Finance – including LulaLend and Bridgement – have automated their systems to rapidly assess applications.
These systems will be looking for a couple of factors:
- 6 – 12 months of turnover data showing stable inflows
- Basic bookkeeping – including compliance documentation
- Separated spend between business and personal expenses – automated systems look for these personal expenses
- Regular payments to SARS **
- Some form of stock forecast / cash-flow forecast (Depending on what funding you applying for)
** FUNDING TIP: If you apply for funding, many of the fintech solutions will scan your submitted bank statements for payments to the South African Revenue Services (SARS). If you are VAT registered (Normally the threshold required for funding) and you claim to have staff – if the systems cannot pick up payments to SARS, you are likely to be rejected.
When applying for funding in South Africa, cashflow will be a major decider
When looking at the South African funding landscape for SMEs, many entrepreneurs realise that lenders do not fund for potential success – they fund based on the cashflow of your business and the ability to repay.
When applying for finance, many business owners focus on profit. However, funders place more weight on cash flow. They want to see that money is coming into your business regularly and that expenses are under control.
Funders usually assess:
- Consistent income deposits
- Stable monthly expenses
- Positive operating cash flow
- No unusual or unexplained bank transactions
Healthy cash flow shows that your business can manage repayments, which is critical for working capital funding.
Key financial metrics funders look at when considering funding an SME in South Africa
On the whole, gone are the days where an entrepreneur puts together a business plan and tries to sell their story on potential. Fintech businesses and banks analyse bank statements, cash flow patterns, and financial ratios before a human even sees the application.
Here are some important numbers funders look for:
- Operating Cash Flow Coverage Ratio: Funders want this ratio above 1.3x to 1.5x, meaning your business generates at least 30%-50% more cash than your monthly debt repayments. Below 1.2x is usually an automatic decline.
- Revenue Growth: Positive growth over the last 6 months is key, ideally between 10% to 20%. Flat or declining revenue is a red flag.
- Profit Margins: For retail businesses, a gross profit margin between 25%-40% is expected, while services should be around 40%-65%.
- Debtor Days: Funders prefer your customers to pay within 30-45 days. More than 60 days raises concerns about cash flow.
Current Ratio: This should be at least 1.5:1 to show your business can cover short-term debts.
If your numbers fall outside these ranges, your funding application may be rejected early in the process.
The importance of Management Accounts when applying for funding
A set of annual financial statements is a key part of your business journey. However as your business scales and you look to access finance in South Africa, you will start to have more complicated requests from funders.
Good Management accounts should include:
- Monthly income and expense reports
- A balance sheet
- Cashflow forecast
This helps funders understand how your business is performing right now, not just in the past.
How Decusatio Working Capital Solutions supports SMEs access finance in South Africa
Decusatio Working Capital Solutions works with growth-focused SMEs to help them access funding. Through our network, we have assessed thousands of SMEs.
We assist businesses by:
- Preparing accounts for funding readiness
- Improving cash flow visibility
- Supporting applications for working capital finance, grants, and debt funding
- Helping business owners engage funders with confidence
Whether you are a small business looking to raise a small working capital facility of between R20 000 and R5m or you are looking to do a more strategic capital raise, we have experts on hand to work with you.
Prepare before you apply – access to finance becomes much easier
Accessing finance is easier when your financial records are clear and well managed. Businesses that understand their cash flow, keep up-to-date accounts, and track key financial measures are far more likely to secure funding.
If your business is planning to apply for working capital, DTIC incentives, or business finance in South Africa, now is the time to get your house in order.
Connect with us if you would like to discuss access to finance in further detail.
