OBTAINING finance from a bank is hard enough, but then you still have to sign a contract promising to honour all the terms and conditions.

For starters, you will have to sign the loan agreement in your personal capacity or provide personal surety. The same applies if you sign any credit agreements with suppliers.

Signing personal surety means the bank or the creditor can come and take away your personal property like your house or car if you default.

Rodney Prinsloo of Enterprise Support says business owners who sign agreements with banks or with suppliers should always sign surety in relation to their shareholding in their business.

For example, he says, if the business owner owns only 20% of the business and is looking to take out a loan of R1 million from a financial institution, he shouldn’t stand surety for more than R200 000.

Prinsloo says business owners taking out finance from a bank should also agree to the covenants laid out in the agreement.

He says these include:

• To present the bank with financials every six months.

• To present the bank with an audited income statement, the working capital ratio and the stock levels.

• To not deplete the original own contribution.

Should a business owner default on these, the bank can call up the loan or up the interest rate charged on the loan.

He says business owners with existing loans who decide to take out another loan should be particularly careful, especially if they sign unlimited surety on the second loan. He says business owners tend to forget that the unlimited surety can now be used to cover the first loan as well.

Business owners should also watch out because surety agreements can run for an unspecified length of time.

This could mean that if you signed surety with a supplier, but then later closed your company after paying up your debts and opened a new company in a different location, you might be held responsible for any other debt you incurred subsequently with that supplier, even if you hadn’t signed surety again with them.

To guard against this, Prinsloo suggests business owners create a file to store all their agreements signed for credit or finance.

When it comes to suppliers’ agreements, there may be a clause in the agreement, signed between the supplier and business owner, that states that until the business owner pays the full amount, the supplier can come and remove the goods bought by the business owner.

Shaun Dreyer, who runs plumbing business Silver Solutions, points out that business owners who take out finance should never rely fully on the date financiers set for a loan to be paid out to you.

He says when he took out finance from Business Partners, the financiers dispersed the finance to him a month and a half late which saw him lose a R100 000 plumbing contract because he didn’t have the necessary cashflow to support the contract.

Ben van Niekerk, who co-owns Mpumalanga manufacturing firm Triangle Profiling Steel, says though he has never experienced any trouble with signing surety with his suppliers or with his bank, business owners should read the fine print and look to exclude certain clauses in the contract that do not necessarily favour them.

Bernard Schoeman of Wiseguys Consultants suggests that business owners take out some form of insurance to cover the eventuality that they might not be able to pay back the loan in full.

He says a business owner can also negotiate with a borrower to allow him to only stand for a percentage of the surety instead of the full percentage.

Nkosana Moyo of Fortis Consulting recommends that business owners take between a month and three months, if possible, when signing any deal for finance.

He says business owners should make sure that they have alternatives available to them so as not to settle on the worst possible terms.

Contact Enterprise Support on 011 795 1294, Fontis Consulting on 012 323 7056, Wiseguys on 015 307 7008, Van Niekerk on 016 455 1630 and Dreyer on 083 756 0790.