Introduction

Access to finance is critical for growth, but most entrepreneurs misunderstand how credit decisions are made. They focus on passion, potential, and big visions. Lenders focus on risk.

Whether you're applying to a commercial bank or a non-bank lender like Pumpkn, the same core question applies:

Can this business repay, in full, on time…even if things go wrong?

To answer that, lenders rely on a structured credit assessment process that considers multiple dimensions of your business: past behaviour, current financial health, future ability, and real-world execution risk.

Let’s unpack how these decisions are made, and how to prepare your business to cross the line.

The Risk Lens: What Lenders Are Actually Evaluating

Lenders don’t fund based on hope. They fund based on data, predictability, and downside protection. Here's what they look at:

1. Credit History & Payment Behaviour (Character)

This is your track record of borrowing and repayment. Lenders look at:
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• Business and personal credit scores
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• Repayment history on past loans
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• Any current defaults, legal judgements, or missed instalments
  
  

💡 Even if your business is small, your personal credit behaviour matters, especially if you're a director or shareholder.

Why it matters:
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Past behaviour is the strongest predictor of future repayment. Lenders reward consistency and penalise unpredictability.

2. Financial Health & Projections (Capacity)

This includes your:
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• Historical financials (3 years if available)
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• Cash flow statements and income trends
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• Forward-looking financial projections

A profitable business can still be high risk if its cash flow is lumpy, or costs are poorly managed.
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Lenders assess:
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• Is revenue consistent and defensible?
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• Are margins healthy?
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• Can the business absorb shocks and still make repayments?
  
  

Tip: Even rough projections can be credible if grounded in data - pricing, yield, input costs, etc. The key is transparency and realism.

3. Collateral & Recovery Path (Collateral)

Not all lenders require collateral, but most assess:
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• Whether there are tangible assets (e.g., vehicle, machinery, property, etc.) to secure the loan
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• The realisable value of those assets if things go wrong (i.e. the value they can actually sell the assets at)
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• Whether personal surety or director guarantees are enforceable

For agri and food businesses, this may include:
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• Property
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• Machinery (tractors, packhouses, cold rooms)
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• Inventory or tradeable goods
  
  

Why it matters:
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Collateral reduces the lender’s loss in a default scenario, but it's never the first line of defence. Cash flow and character come first.
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4. Operational Capability & Delivery Risk (Conditions)

This is especially relevant in agriculture and agri-processing.

Lenders assess:
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• Can you deliver on time, in full, and on quality?
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• Do you have the infrastructure, team, and tools to meet contract demands?
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• Are you farming or producing at the right scale, with the right inputs?
  
  

They may ask:
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• Is your land size, soil, and water access sufficient?
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• Are your yield assumptions realistic?
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• Do you have the equipment (e.g., cold chain, logistics) to avoid spoilage or downtime?
  
  

Why it matters:
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In agri-food, operational risk often outweighs financial risk. Lenders are funding a process, not just a balance sheet.

How to Gear Your Business for Funding Readiness

Lenders want to say yes. But only to businesses that show they are fundable and disciplined.

Here’s what you can start doing…today:

1. Get Structurally Compliant
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• If not done yet, register a private company (Pty Ltd)
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• Ensure full compliance with CIPC, SARS, UIF, and COIDA
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• Maintain up-to-date documentation: tax clearance, BEE certificate, business licences, etc.
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2. Build a Strong Financial Record
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• Work with a bookkeeper or accountant to produce monthly management accounts
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• Submit annual financials, preferably signed off by a registered accountant
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3. Understand and Improve Your Financial Health
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• Track cash flow, margins, and ratios month-by-month
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• Identify unnecessary costs or delayed receivables
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• Use Pumpkn’s insights and nudges to build habits that lenders trust
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4. Create Cautious, Data-Driven Projections
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• Don’t overstate income or underestimate costs
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• Use realistic productivity, price, and cost assumptions
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• Stress-test your projections under different scenarios
  
  

Final Word: Funding Follows Discipline, Not Just Potential

Getting a loan is not about being the most ambitious business. It’s about being the most prepared.

If you:

✅ Have a clean track record
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✅ Can show healthy, growing cash flows
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✅ Know your numbers
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✅ Operate efficiently
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✅ Keep clean records
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You’re not just a borrower…you’re a business that’s ready for capital!

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