Alternative business loans: Why asset finance is the way to go

Are you ready to delve into the world of asset finance? We'll start by discussing what asset finance is and how it works, before exploring the benefits it can offer to small and medium-sized businesses.

We'll also look at the eligibility requirements and documents needed to apply for asset finance, as well as some of the key differences between asset finance and traditional business loans. Lastly, we'll list some of the top asset finance providers in South Africa and provide a brief summary of the asset finance options they offer.

Let’s get going!

So, what is asset finance?

Asset finance can get pretty complicated but, we’re going to keep it simple. It’s a type of business loan that allows small business owners to purchase the assets they need to operate their business, such as equipment, machinery, or vehicles.

Unlike traditional business loans, asset finance doesn't require the borrower to put up collateral. Instead, the asset being financed serves as security for the loan.

The borrower makes monthly payments to the finance company until the loan is paid off, at which point the asset becomes the borrower's property. Asset finance is often easier to obtain than traditional business loans since the lender sees the asset as a lower-risk investment.

So, you may be wondering, why asset finance?

South African SMEs face unique challenges when it comes to accessing finance. Traditional lenders may require collateral or high credit scores, which many SMEs don't have. Asset finance offers an alternative option for SMEs to access the capital they need to grow their businesses.

By using asset finance, these businesses can purchase the equipment and machinery necessary to increase production, expand their offerings, or streamline their processes.

This can lead to increased revenue, improved cash flow, and a stronger bottom line. Additionally, since the asset being financed serves as security for the loan, SMEs may be able to obtain more favourable terms and lower interest rates than with other forms of financing.

Asset finance versus traditional term loans - which is better?

When it comes to financing options for small and medium-sized enterprises (SMEs) in South Africa, asset finance and traditional business loans are two popular options. Traditional business loans may require collateral, higher credit scores, and a longer approval process, which can be challenging for SMEs to meet.

Asset finance, on the other hand, allows SMEs to leverage the assets they need to purchase to secure financing, making it an accessible option for many. Additionally, asset finance typically offers more flexible repayment terms and can be easier to obtain than traditional business loans.

That said, traditional business loans may still be the better option for some SMEs. For example, if the SME has a strong credit score and a proven track record of financial stability, they may be able to negotiate better interest rates and repayment terms with a traditional lender. Additionally, traditional business loans can be used for a wider range of purposes than asset finance, which is typically limited to the purchase of specific assets.

Ultimately, the best financing option for South African SMEs will depend on their individual circumstances, financial history, and business goals. SMEs should carefully weigh the pros and cons of both asset finance and traditional business loans and choose the option that best meets their needs.

If you think asset finance may just be the right choice for your business, read on because we’re going to take a look at what assets can be financed, which lenders offer asset finance and what you need to qualify.

Types of assets that can be financed

Assets that can be financed include vehicles, heavy machinery, computer equipment, office furniture, agricultural equipment, and more. To make it easier to determine if this is the right type of financing for your business goals, here’s a more comprehensive list we’ve put together:

• Vehicles: This includes cars, trucks, buses, and any other type of vehicle necessary for business operations.
• Heavy Machinery: This can include construction equipment, industrial machinery, and other types of heavy-duty equipment.
• Computer Equipment: This includes desktop computers, laptops, printers, and other IT equipment necessary for business operations.
• Office Furniture: This can include desks, chairs, filing cabinets, and other office furniture necessary for a productive work environment.
• Agricultural Equipment: This includes tractors, harvesters, and other machinery necessary for farming operations.
• Medical Equipment: This can include equipment used by doctors, dentists, and other medical professionals.
• Restaurant Equipment: This can include kitchen equipment, refrigeration units, and other appliances necessary for restaurant operations.
• Renewable Energy Equipment: This includes solar panels, wind turbines, and other equipment used for renewable energy generation.

10 of the largest asset finance providers in South Africa

Large banks are the primary provider of asset finance in the country, here are some of the leading lenders in this category:

1. WesBank - Offers asset finance for various assets, including vehicles, machinery, and equipment. With flexible repayment terms and competitive interest rates, WesBank tailors its solutions to meet the specific needs of businesses in South Africa.
2. ABSA - Offers flexible asset finance solutions to businesses in South Africa, including those in the agricultural, construction, and transportation industries. ABSA's asset finance products include vehicle finance, equipment finance, and asset-based finance.
3. Nedbank - Provides comprehensive asset finance solutions that cover a wide range of assets, including vehicles, machinery, equipment, and renewable energy solutions. With a focus on sustainability, Nedbank's asset finance offerings help businesses reduce their carbon footprint while achieving their growth objectives.
4. FirstRand Group - Offers asset finance solutions that are tailored to meet the specific needs of businesses, including vehicle finance, plant and machinery finance, and asset-based finance. With competitive interest rates and flexible repayment terms, FirstRand Group helps businesses achieve their growth and expansion goals.
5. Investec - Provides asset finance for a wide range of assets, including vehicles, plant and machinery, and renewable energy solutions. Investec's asset finance solutions are tailored to meet the specific needs of businesses in various industries, with a focus on flexibility, innovation, and sustainability.
6. Mercantile Bank - Offers asset finance solutions for a wide range of assets, including vehicles, machinery, equipment, and technology. With a focus on building long-term relationships with clients, Mercantile Bank provides flexible repayment terms and customized solutions to meet the unique needs of each business.
7. Sasfin - Provides tailored asset finance solutions to businesses in various industries, including those in the agricultural, construction, and transportation sectors. With a focus on innovation and sustainability, Sasfin's asset finance offerings include vehicle finance, equipment finance, and asset-based finance.
8. MFC - Offers asset finance for vehicles, plant and machinery, and other equipment. With a focus on flexible repayment terms and competitive interest rates, MFC's asset finance solutions are designed to help businesses achieve their growth and expansion goals.
9. Bidvest Bank - Provides customized asset finance solutions to businesses in various industries, including those in the construction, logistics, and agriculture sectors. With a focus on long-term partnerships and customized solutions, Bidvest Bank helps businesses achieve their goals while managing their cash flow effectively.
10. Business Partners Limited - This South African asset finance provider offers financing solutions for a wide range of assets, including machinery, vehicles, equipment, and more. They specialize in providing funding for SMEs and offer flexible repayment options to suit the needs of businesses. Business Partners Limited also provides business support services to help SMEs grow and succeed.

Does your business qualify for asset finance?

Each lender will have their own set of requirements to approve your asset finance application but, most will generally require your business to:

• be registered and operating legally in South Africa.
• have a good credit history and credit score.
• have a viable business plan and be able to demonstrate its ability to make repayments.
• have sufficient cash flow to cover the cost of the asset finance repayments.
• provide a deposit or some form of collateral to secure the asset finance loan.
• give financial statements or tax returns as proof of its financial stability.

Here's a list of document’s you’ll likely need to provide too (it’s a long list so don’t be intimidated):

• Completed application form with all relevant information about the business and its financial situation.
• Proof of business registration and legal status.
• Business plan outlining the intended use of the asset and the expected return on investment.
• Financial statements or tax returns for the previous three years to demonstrate the business's financial stability.
• Bank statements for the past three to six months.
• Proof of identification for the business owner or director, such as a South African ID or passport.
• Proof of residence for the business owner or director.
• Proof of insurance for the asset being financed.
• Invoice or pro forma invoice for the asset being financed.
• Purchase agreement or contract for the asset being financed, if applicable.
• Collateral documents, such as property deeds or vehicle registration papers, if required.
• Guarantees or suretyship agreements, if required.
• Any other supporting documents that may be requested by the lender.

Not sure if asset finance is the way to go?

If you're unsure about which type of finance would work best for your business or which lender to choose it may be worth your time to seek the advice of a financial advisor or business consultant. These professionals can provide independent and impartial advice on the different types of finance available and help you compare options and make the best decision.

Alternatively, you can approach the lender that you already have a relationship with (whichever bank you bank with) directly and request to speak to a financial advisor or consultant.

Many of these lenders have specialist teams who can assist with providing guidance and advice on the different types of finance on offer and how they may best suit the needs of your business so make use of their knowledge to your benefit, for free!

Also, make sure to check out our complete list of South African asset finance providers if you want an overview of your options.