VIEWS: 8 PAGES: 16 POSTED ON: 9/5/2011
VEHICLE FINANCING OPTIONS AND SOLUTIONS Pieter Els Managing Director – Global Asset Financing www.gafpty.co.za tel: 012 345 1656 TOPICS FOR DISCUSSION • The requirement for Financing • Sources of Financing • Financing source matched to asset type • Types of financing available in market • Counterparty risks and multiple banks • Surety considerations • Critical criteria for financing • Dealer based financing vs Bank financing • Cash buy option – linked to financing • Interest rate effect on monthly installments • Practical tips for financing THE REQUIREMENT FOR FINANCING • Own equity and capital limitations • Business growth requirements • Using banks and financiers resources to generate return > cost of the capital SOURCES OF FINANCING • Equity / capital →purchase a business • Loans & term finance →projects and property • Overdraft →operations & debtors • Asset based finance →depreciating assets • Debtors securitisation →operations & cash • Suppliers / vendors →operations & debtors SOURCES OF FINANCING • Equity / capital →buying a business • Loans & term finance →projects and property • Overdraft ** →operations & debtors • Asset based finance →depreciating assets • Debtors securitisation →operations & cash • Suppliers / vendors →operations & debtors ** beware of nature of O/D FINANCE TYPES COMPARISON Type of Legal & Cash Income Tax VAT Tax recoup financing ownership flow deduction ment Deposit? VAT INSTALMENT SARS Only if Ownership Repay claim SALE tables sold capital 14% Deposit? VAT Market Ownership Actual LEASE optional Residual each payment value value payment @owner No VAT Market Lessor deposit Actual RENTAL owned each payment value Escalate payment @owner COUNTERPARTY SATURATION RISK & MULTIPLE BANKS • Definition of bank saturation risk • Practical example: XYZ Group based in North West – 4 years x 6 times size • Multi bank financing: facilities with >1 bank or financiers DIFFERENT BANK = DIFFERENT CRITERIA FOR FINANCING • The 3 year rule • Contract financing • Equity financing • Discounting of cash stream • Risk appetite • Industry segment dominance • Industry segment targeted BANK’S CRITICAL CRITERIA • The “jockey” : experience, expertise, knowledge • Financial history and status • Industry or Industry Segment • Contracts & guaranteed income streams • Forecasts and cash flows • Replacement or expansion of fleet • Overall risk assessment by bank SURETYSHIP CONSIDERATIONS • Dangerous document! • Business owners & directors personal surety • Jointly and severally liable • Proportional to shareholding • Limited or unlimited surety look out ! • Property as surety – value risks DEALER BASED FINANCE vs BANK FINANCING BANK FINANCE DEALER FINANCE • No disclosure to dealer • Full business disclosure • Independent financing • Linked to dealer brand • Pre-approved finance • Approve at deal level • Some degree of difficulty • Convenience in transaction • Buy back arrangements • Trade back arrangements • Obtain discount with • Discount subsidise interest reduced installment rate CASH BUY OPTION – LINKED TO FINANCING Asset Installment SF Savings Sale Financing Account Contract • Earn interest @ asset • Financing on it’s own financing rate (+/- 12,5%) merit • Limited to capital o/s • NO interest payments • No Tax issues interest • Monthly set off of capital • Put VAT refund here balances only • Internet based account • Repay capital only • Cannot serve as surety • Debit order from SF account CASH BUY OPTION – LINKED TO FINANCING • Earn interest of 12% or more from bank • Linked to asset financing contract • Immediate availability of cash • Flexibility if cash needed elsewhere • All cash buy benefits + more • 3 options: full value, VAT refund only, excess cash • Interest calculated on net capital balance EFFECT OF INTEREST RATE Prime - 0,5% Prime Prime + 0,5% (12%) R500,000 bus 60 months 10% deposit Installment p.m R9,896 R10,010 R10,124 Delta R114 p.m. Delta R228 p.m. PRACTICAL TIPS • Using of >1 bank for Asset Financing • VAT back in month 3 or 4 Look out!! increasing deposit to 24% or 34% ** • Early settle charges: 90 days – negotiate! • Asset owning company vs operations co • Strong financial statements = easy finance • Use guaranteed buy back for surety • $ or EURO based loans – income in Rand THANK YOU !
Pages to are hidden for
"Els"Please download to view full document