Using personal loans to fund a business: What South Africa entrepreneurs should know?
An increasing number of South Africans are turning to personal loans to fund business ventures, according to Nedbank. While this approach may seem accessible, experts warn it carries significant risks if not backed by a solid financial plan.
Wendy Beaumont, executive for unsecured Lending at Nedbank, says personal loans can work for certain entrepreneurs—particularly those with stable incomes and minimal debt—who want to finance early-stage operational needs.
However, she cautions that using personal loans for untested business ideas or high-capital ventures could lead to long-term financial strain.
'The ideal scenario is when your current income is stable enough to cover repayments even before your business starts generating profit,' says Beaumont.
She notes that individuals already managing debt should be especially cautious. A personal loan adds another monthly obligation, which can affect credit scores and household budgets if the business fails to generate returns.
When personal loans make sense
Personal loans may be suitable for modest capital requirements—such as buying equipment or covering start-up costs—where the business case is proven, and personal finances are healthy.
Beaumont says loans are best used to fund clear, realistic plans rather than high-risk ideas.
Alternatives to consider
Before applying for a personal loan, aspiring entrepreneurs should explore alternatives such as:
- Personal savings
- Support from family or friends
- Government grants or supplier development programmes
- Reinvested business profits
These options may reduce the size of the loan required or offer more favourable repayment terms.
Borrow with a plan
Beaumont advises borrowers to keep personal and business finances separate, understand the total cost of borrowing, and prepare conservative budgets with contingencies.
'Taking a personal loan for a business is not about funding a dream,' she says. 'It's about funding a plan.'
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