Asset-based finance is a specialised method of providing businesses with working capital and term loans that will use accounts receivable, inventory, machinery, equipment, or property as collateral. Essentially, it is any loan to a business that is secured by tangible security to ensure the ultimate repayment of the loan.
The type of assets that financiers prefer include:
- Unencumbered fixed property. Location, demand, and saleability can influence the value of the property and the financier’s eagerness to grant a loan against it.
- Partially encumbered fixed property – same as above, except that the outstanding amount on the property will be deducted from the maximum loan amount considered by a financier.
- Investments (not in any specific order)
- Bank investments (Call deposits, notice deposits and fixed-term investments.)
- Money market investments.
- Insurance policies with a cash value or drawdown option.
- Stock exchange shares (Depending on the industry, the security value will differ.)
- Movable assets (not in a specific order)
- Plant and equipment (Preferably owned, otherwise the outstanding debt is included in the loan amount.)
- Vehicles and trailers.
- Furniture and fittings.
- Letters of undertaking from conveyancing (property transfers) attorneys (Acceptable if the funds are held in trust or a bank guarantee is held by them.)
- Bank guarantees.
Who would need asset-backed short-term loans?
Business owners, chief executive officers, financial directors or financial accountants (managers) normally seek such a facility when they face a crisis or a lucrative opportunity, with no time to spare.
Why don’t they have sufficient free cash flow? Well, their current commitments in all probability rely on existing free cash flow.
What can asset-backed short-term loans be used for?
Expansion or growth opportunity:
- Sell more to existing customers.
- Sell more to new customers.
- Able to sell at higher margins.
Cover a cashflow shortfall:
- Low or reduced profits
- Expanding too fast
- Unexpected expenses
- Late payments
Buy product or stock:
- Sell more to existing customers
- Sell more to new customers
- Able to sell at higher margins
Auction asset purchases:
- Stand only
- Residential property
- Commercial property
Purchase Order Funding:
- Guaranteed purchase order
- To grow business
- Extended terms
Advance against sold property proceeds:
- Successfully sold property
- Owe less than 70% of the sale value
- Property developer advance
Property short term cash:
- Regearing against existing property loan
- Development internal service finance
- Cash purchase advance pending Bank Term Loan
- For imports
- For exports
- Fund working capital shortfall
- Increase sales
Where to apply for an asset-backed loan facility?
If you are not in a hurry- and have say three to six months before you require additional working capital - your bank manager may be the best choice.
However, if you don’t have time on your side, and are seeking between R500 000 and R30 million - and require a decision within 48 hours, your best bet is to approach CorpFin directly.
CorpFin offers businesses and entrepreneurs essential short-term financing (three to nine months) to unlock potentially high-yielding opportunities not typically supported by traditional finance institutions.
CorpFin acts as an intermediary between investors and clients by linking financial opportunities to willing private investor capital. We do not finance cash flow, but rather growth opportunities to established, profitable enterprises.