When your business needs cash to grow, the various bank loans available might not be an option. You could unlock working capital through your assets, such as your property. Here’s how:
The Business Cash-Flow Conundrum
Cash is king. Without positive cash flow, it is very difficult to grow your business. Business owners everywhere are all too familiar with the vicious cash-flow circle. The ability to grow is right in front of you, orders or projects wait in the balance. However, to fulfil those orders, you may need stock or capital equipment that will support your ability to meet the demand. You need cash in hand first before you can make more money.
Approaching the banks for business funding may not be an option. You may have exhausted your lending options at the bank, or want to avoid unnecessarily high interest. The most likely scenario is that you need to raise finance fast. You just cannot risk the long, and laborious, process of applying for a bank business loan. What, then, are your options?
Ways to raise working capital
If you are looking for alternative ways to secure business funding, an asset-backed loan may be the answer.
The benefit of asset-backed lending (as it’s also known) is that the lender looks at the value of the asset being put up for collateral instead of credit history to grant the loan. This is helpful when you need a large sum of money that a line of credit won’t offer because of specified limits.
Property-backed loans: a viable alternative
Property-backed finance allows businesses to borrow a lump sum amount against immovable assets, namely residential or commercial property. In other words, a first bond on your property acts as the surety for the loan. Generally, the loan period is five years, but you can choose a shorter term too.
You can realise funds in one of two ways:
- A term loan provides a fixed amount based on the property’s value, and the amount that is borrowed is then repaid over a set
- A revolving credit facility allows you to access funds in a way much like an overdraft. The loan amount is based on the equity of the property, and you service the interest portion of the monies borrowed monthly. Thus, giving you access to the money you need as and when there is a need.
How to get property-backed finance:
First, you need to meet the minimum criteria.
- The minimum value of the loan or revolving facility is R500 000.
- Your business has at least one year’s audited financials,
- Cash flow forecasts for the next 12 months that show that your business can afford the loan or revolving credit, and
- Valid proof of ownership of private or commercial property.
Upon approval, a bond will then be registered on the property. The full loan value will then be made available, or a revolving facility will be established.
The undisputed advantages of a property-backed loan
Using residential or commercial immovable assets to fund your business has multiple benefits:
- Interest rates are lower than traditional loans as your property acts as a guarantee to the lender.
- Initial requirements are not as strict as traditional bank financed loans, credit rating and debt-to-income ratios are not as closely scrutinised
- Large amounts can be borrowed in one lump sum, or smaller amounts as and when cash flow is at risk.
- With the revolving facility, you only need to service the interest every month; the loan amount can be repaid when it is viable for the company within 5
- Higher levels of flexibility: the full amount can be paid back at any stage, or extra funds accessed very similar to an increased overdraft facility.
Improve your cash flow today
Transaction Capital Business Solutions (previously, Rand Trust) started more than 60 years ago with a core aim in mind.
Our aim was to support businesses that were unable to access funding through the traditional channels for their businesses sustainability and critical strategic growth.
As a listed financial services company, we pride ourselves in our excellent standards within the areas of risk management, compliance, governance, transparency and ethics.
We are here to help small to medium-sized businesses reach the next phase of their growth. That means working closely with you to meet your specific and unique needs. It is our honour to play a part in assisting you with achieving continued business success.