Asset Finance

Asset financing means a business borrows money against assets it currently owns. Asset financing loans are usually short-term loans and are used for things such as paying wages or buying raw materials. Businesses are not buying new assets but rather using their current assets to make up for working cash flow.

With asset finance, you must provide the lender with a security interest in your assets.

For SMEs, asset financing offers a more flexible and efficient way for them to get the equipment, vehicles and technology they need, without the constraints associated with traditional bank loans.

In traditional banks, the requirements are usually stricter than private lenders. Banks require applicants to have collateral, a good credit score and a strong cash flow before you can apply.

This type of funding can be used for the following purposes:

• Secure the necessary tractors, irrigation systems, and harvesters for your agricultural business.
• Acquire cutting-edge diagnostic equipment, X-ray machines, scanners, and critical medical devices.
• Obtain equipment, ranging from computers and network devices to desks and chairs.
• Secure financing for your business’s energy needs, including solar panels, UPS systems, backup generators, and more.
• Access financing solutions for vehicles, including vans, trucks, and cars, to help your business operate smoothly.
• Construction and Heavy Equipment Finance: Acquire essential construction and heavy equipment, including bulldozers, forklifts, cranes, and earth-moving machinery.

Pros

• The asset you lease will have monthly payments, which will be recognised as an expense in your financial statements. As the lessee, you will be able to claim these payments as income tax deduction.
• When you do finance leasing, you will not be able to recognise the loan on your financial statements. You will also not be able to claim these payments as part of your income tax deduction.
• In terms of VAT, you can claim the input tax on the full purchase price of the asset at the beginning of the lease.

Cons

• Allows for wear and tear: You can claim a tax deduction for the depreciation of assets. This will help your business offset the natural decline in value of the asset due to everyday use.
• Claim the wear and tear allowance: Depreciation reduces the accounting profit before tax (PBT) of your business. If you want to determine your taxable income, you can add the accounting depreciation to your PBT and deduct the wear-and-tear allowance. This will help reduce the taxable income of your business.
• If you default, you could face consequences such as loss of your asset, damage to your credit score, legal action against you from the lender.
• When it comes to repossession, failure to meet your financial obligations (repayments) may lead to your asset being repossessed by your lender

• Must not be a sole proprietorship, trust, or partnership.
• Your business needs to have a turnover greater than R1 million (R100 000 per month) over the past 12 months.
• You must be a registered entity and have been fully operational for at least 12 months.