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					  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 !

				
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posted:9/5/2011
language:English
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