Why alternative asset finance is critical to business survival
For a business to truly grow, it needs, among other things, assets. But there are two problems with assets used in most industries: they depreciate over time and can quickly become obsolete.
Assets are also expensive, and while they might help increase production, there are better ways to spend excess cash. This is where asset finance comes in, a more flexible and accessible choice of funding for business assets.
Is asset finance right for my business?
A credible financing alternative to traditional banks or the ever-predatory loan sharks, asset finance solves many of the issues associated with acquiring equipment because it has been created for a purpose: to finance assets.
To gain a better understanding of how asset finance can help your business grow, you need to position the following:
- The future of your business
Where do you see your business in five years – what about 10 years? Will the asset you buy today still be relevant then? Or will it need to be replaced? Also consider the business type and industry.
For example, if you are in the medical industry you will be very aware that equipment quickly becomes outdated and you will need a replacement upgrade in a few years’ time. For this reason, renting is a great option: maintenance and liability costs lie with the owner of the equipment and when it’s time to upgrade, all you need to do is replace the rental instead of selling and replacing a depreciated asset.
- Your cashflow situation
Need to upgrade equipment within a year or three? Thinking of increasing production for an upcoming deadline? How about maintenance – if you do buy a piece of equipment now, will you be able to pick up the cost of maintenance along the way?
It’s important to match your cashflow with asset expectations; knowing how often you need to replace an asset and when helps with long-term planning and budgeting. A monthly payment for a rental could be a much better option than a once-off or monthly payment for a soon-to-be obsolete asset.
- Opportunity costs
If you have R1 million rand to spend, does it really make sense to buy a piece of equipment if it is set to become obsolete in three years? Rather than being stuck with a machine, consider spreading the investment over time to retain that all important cashflow for something that will generate more income, such as marketing or product quantities. Even though you might be able to afford a once-off payment, there might be better use of the cash as working capital.
Want to pay over five years instead of three? Need to get more than one asset type, all with different values and life expectancies? Whether it’s a simple laptop or an autorefractor for your optometry practice, you don’t want to be stuck paying off a depreciating asset that is bound to become obsolete in a few years – and steering clear of assets with short life expectancy is not a viable option, especially if you are looking to use the latest and greatest equipment in your field. By choosing the asset finance route, you can get a solution that best fits your balance sheet – and your business.
Convinced asset finance is the solution for you? Then you’re ready to take the next steps.
How does asset finance work?
Once you have decided on the asset finance route, Finance Africa can help find the best solution for you. With years of experience, we can facilitate nearly all industries in South Africa, from ICT and retail to the commercial, corporate and public sector, agriculture, mining and medical industry, to name a few. Based on your requirement, we set up an agreement for a pre-arranged period for you to approve.
At Finance Africa, we truly understand the importance of facilitating asset financing beyond the traditional automated process and, as a Level 2 BEE provider, you can further your BEE procurement requirements. Get in touch with us today to learn more.