UNDERSTANDING ASSET-BASED FINANCING

Asset-based financing is a way for rapidly growing, cash-strapped companies to meet their short-term cash needs. In general, companies can tap their assets to generate cash flow through asset-based loans or through factoring.
The asset-based financial services industry has burgeoned in recent years, and small businesses have fueled much of its growth. Although a stigma is still associated with using your assets to get cash, this type of financing is becoming more popular.

Asset-Based Loans

When you apply for an asset-based loan, you pledge assets to secure a loan from a bank or a commercial finance company. You still own your assets, but if you don’t make good on your payments, the lending institution can seize them.
Asset-based loans are typically for companies with less-than-perfect credit. Interest rates and fees on these types of loans have fallen in recent years due to intense competition, but generally they are higher than traditional bank loans. As with all commercial lending, rates are negotiable. Lenders will look at your credit record, how long you’ve been in business and whether your assets are liquid.
Accounts receivable and inventory are common collateral, but any asset might qualify. When you use accounts receivable to secure a loan, you can expect to get about 60 – 75 percent of the face value of your fresh invoices. The loan-to-value ratio drops rapidly for older accounts.
When you use inventory to secure loans, your lender will most likely use a bonded warehouse — an approved warehouse used to store goods and monitor inventory — and pass the cost on to you. Loan amounts vary widely from about 30 to 80 percent of the value of your inventory.

Advantages and Disadvantages

The main advantage of asset-based financing is that small companies can usually get more cash more quickly than they could from a traditional bank loan. Also, asset-based lenders offer an array of services.

The drawback of asset-based loans is the expense. Using your assets to generate cash flow increases your cost of funds and cuts into profits. You need to weigh your situation carefully and determine whether this type of financing is necessary to expand your company or keep it afloat.

In Short

This product is for clients who have valuable assets, but are in need of short term liquidity. Funds will be advanced against the security of commercial property for a maximum period of twelve months, affording clients ‘breathing space’ to realise their assets without pressure or providing them with the time to secure long term financing from a commercial bank.

Minimum Requirements:

The Borrower must be a Juristic Person in terms of the National Credit Act

• Maximum transaction value not to exceed 60% of valuation
• Valuation of property to be done at clients’ expense.
• Minimum advance of R1 000 000 (no maximum).
• A first bond is to be registered over the property
• Maximum term of the loan of 12 months

If you’re looking for this type of financing, Please consult with Morne Prinsloo .

Please contact us if you require any further information or would like to apply for finance:

Complete this short form online

011.327.4489 / 0861 1111 93

morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za

a Further Loan against your existing property

A further loan / second bond is usually beneficial for those homeowners who bought their property a while ago. Say for example you bought your home five years ago for R500 000 and the home is now worth R 800 000, you will be able to take a further loan for the amount of R 300 000. Homeowners who are bond-free can also refinance their properties to raise some capital.

When applying for a further loan / second bond, your home will be appraised to determine its value and your credit file will be reviewed. The bank or lender will order a title report on your property to search for any liens that might appear. If the bank or lender is satisfied with all these items, the loan is likely to be approved.

Unfortunately, there will be costs involved in taking a further loan. These costs include second bond registration costs, conveyance fees and the appraisal fees. The total of these costs is usually only about 1% of your total loan amount, but must still be kept in mind. Your monthly instalments will become bigger, so make sure you can afford it before you apply for the loan.

It is advisable to use further loans for funding additional investments on your property, as this will improve the value of your property even more. With the property market in South Africa at this stage, you never know if your property’s value will rise or fall in the next few years. Your property’s value might have grown from R 500 000 to R 800 000 in the past few years but it might depreciate in the next few years, leading to negative equity.

Further loans can be used to finance renovations to your home, but some homeowners use the money to buy new cars, consolidate their debt or for other capital expenditure. This is one of the cheapest ways to access finance because home loan rates are typically the lowest of all other financing methods.

We will give you free advice on the questions you might have about the costs associated with further loans and we can help you understand the personal financial planning implications of a further loan. We will also be able to renegotiate the interest rate you are currently paying on your home loan as your loan-to-value ratio improves.

Benefits of applying for a Further Loan against your existing property

• You get fast access to a loan
• To release cash tied up in the value of your house
• Access to cash when you need it
• To use surplus cash released to reduce other expensive forms of debt
• You benefit from a low interest rate
• To restructure your home loan over the maximum period to reduce monthly cash flow
• Easy to manage

Please contact us if you require any further information or would like to apply for finance:

Complete this short form online

011.327.4489 / 0861 1111 93

morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za