Asset loans for businesses and individuals
Life can be full of surprises. Geysers burst, cars break down, and children need new braces when you least expect it – and often when you can least afford it! Perhaps you’ve already eaten through your emergency fund and you’re strapped for cash. What are your options now?
As a business owner, you can also be in dire need of cash. Cash flow declines can make it impossible to run your business smoothly. What can you do to prevent a financial crisis?
Your assets may be the key to the cash you so desperately need. Usually, an asset loan is one of the only options left if you have a poor credit history.
Let’s face it. We’re living in tough economic conditions. These days, many South Africans struggle to make ends meet. Obtaining quick finance from banks has become extremely difficult – and sometimes you need a little financial kick to get you back on track.
However, it’s crucial to keep in mind that asset loans can pose a major risk to your future financial situation. If you take out a loan against your valuable assets and you fail to repay the loan, the company offering the loan may sell your assets to recover the money you owe them.
If you’re thinking about getting an asset loan, you may want to make sure you know what you’re getting into first.
What is an asset loan?
An asset loan is a short-term loan that allows you to borrow money against your valuables. The Loan Company explains that an asset loan is often a quicker and easier alternative to traditional loans, as you can use what you already own as collateral to unlock short-term finance.
So, instead of going to a bank, which usually has specific requirements, to take out a loan, you can get instant cash by borrowing money against your assets. You can use various assets to secure a loan. The insurer takes your asset as surety and stores it safely. Once you’ve paid back your loan, your assets are returned to you.
What is collateral?
To secure an asset loan, you will be asked to provide collateral or surety for the loan. This can be anything you own that has a cash value, including your vehicle, property, jewellery, or equipment. The lender will value your asset and lend you an amount in accordance with its worth.
If you default on the loan payments, the lender can resell the collateral and use it to recover the money loaned to you. This ensures that the borrower has more reason to pay off their loan on time.
Loans that are secured by collateral may be available at a lower interest rate as opposed to unsecured loans.
What assets are accepted?
Most asset loan lenders will accept various types of assets including:
- Small, but valuable, movable assets – moved, such as luxury watches, gold, diamonds, antiques, and artwork.
- Vehicles – keep in mind that you may not use your vehicle while taking out a loan against it.
- Property – if you own a company, closed corporation or trust with three or more trustees you will be able to take out an asset loan against a property. The property needs to be unencumbered, in other words, it should already be paid in full.
Benefits of an asset loan
- Cash flow when you need it. If you’re struggling to qualify for a traditional loan, you can opt for an asset loan. It is easier to get an asset-based loan when you need money desperately.
- Quick and easy. It is easier to get. All you need is a fully paid off asset to unlock a loan. It is often a lot quicker than trying to obtain a loan from traditional lenders as they often require credit checks and assessments. Asset loans can be processed within a day in some cases. This is very helpful for those in dire need of immediate cash.
- Fewer restrictions. There is some form of protection for the lender. However, there are fewer restrictions and more flexibility for the borrower – which may be a blessing or a curse.
While asset loans are an extremely convenient and flexible way to get cash in hand quickly, borrowing money does pose many risks. We recommend that you find out as much as you can before making any financial decision. If you’re struggling with debt, a long term solution to your financial problems may be a better option for you. Find out more here.