Obtain Finance

Types Finance Secured Finance – Finance is given in return for security over an asset – The security is a guarantee that lender has first preference on the asset if the creditor becomes insolvent. – Value of security is usually greater than the finance amount – Security may be Fixed or Floating

Fixed Security Security over a fixed asset – Security may be over a property – Security may be over a vehicle – Security over other fixed valuables such as jewellery, plant etc – Security in most cases must be registered

Floating Security Security is a given of non specific assets such as stock Borrower is required to keep stock levels to cover the security This type of finance is not usually used in the building industry

Types of Finance Unsecured Credit – Lender give credit with no security over any assets – If borrower becomes insolvent, lender has no preference in front of other creditors. – There is more risk to the lender – Interest rate will be substantially higher – Credit Cards, Unsecured Personal Loans

Definition - Security Asset owned by borrower which lender has legal claim Borrower cannot deal with security with out satisfying debt If borrower becomes unable to repay debt, lender can seize asset to satisfy the debt. Lender prefers 80 : 100 security Some Lenders will allow 105 : 100 As there is higher risk, Interest will be higher and insurance will be required

Definition - Equity Amount of your ownership in an Asset If you own it outright you have 100% equity If your Asset is valued at $ and you owe $ on it Your equity is 75%

Short Term Finance Overdraft – Withdrawals exceed deposits – Prior approval authorised by lender – Interest Charged when account is in negative – Interest Credited when positive – May be secured or unsecured.

Short Term Credit Trade Credit – Trade credit exists when one firm provides goods or services to a customer with an agreement to bill them later

Short Term Credit Bridging Loan A bridge loan is interim financing until permanent can be obtained. House is bought before existing house is sold Second mortgage required on existing house Interest rates are usually higher to compensate for the additional risk of the loan.

Short Term Finance Credit Card – It is a card entitling its holder to buy goods and services based on the holders promise to pay for these goods and services. The issuer of the card grants a line of credit to the consumer (or the user) from which the user can borrow money for payment to a merchant or as a cash advance to the user

Medium Term Finance Medium term debt is money that is borrowed 2 to 6 years

Medium Term Finance Commercial Bills – A non-bank bill of exchange (loan) generated by merchant or investment banks and companies. The bill is evidence of the borrower's debt and commitment to repay at the due date. These bills are covered by the Bills of Exchange Act , as are bank bills, but they are called 'commercial' to indicate they are issued by institutions other than banksbill of exchangeinvestment banksdebtdue datebanks – Security covered by Bills of Exchange Act – Only Interest Component of the repayments are Tax Deductible

Medium Term Finance Term Loans – A bank loan to a company, with a fixed maturity – Repayment only required at maturity – Interest is added principal (Amortized). – May be Secured or Unsecured – Unsecured will attract a higher Interest Rate – Only Interest Component of the repayments are Tax Deductible

Medium Term Finance Personal Loans – A bank loan to an entity – Will require ongoing payments – Interest will be reducible – May be secured or unsecured – Unsecured will attract a higher interest rate – Only Interest Component of the repayments are Tax Deductible

Medium Term Finance Debentures – Are instruments where by company borrows directly from public – Acknowledgement of Debt – Private Company (Pty Ltd) can only issue to max 20 people – Public Company (Ltd) must issue a prospectus – May be secured or unsecured – Only Interest Component of the repayments are Tax Deductible

Medium Term Finance Leasing – An agreement between two parties under which one is granted the right to use the property of the other for a specified period in return for a series of payments by the user to the ownerreturn – Ownership stay with financier – Regular lease payments made as per contract – At end of contact residual payment made – Lease Payments are Tax Deductible

Long Term Finance Long Term debt is money that is borrowed from periods greater than 6 years. Only Interest Component of the repayments are Tax Deductible

Long Term Finance Term Loan – Same as previous – Only Interest Component of the repayments are Tax Deductible

Long Term Finance Mortgage Loans – Loans with Property as security – Security must be registered with Land Title Office to be valid – Only Interest Component of the repayments are Tax Deductible

Long Term Finance Sale & Lease Back – Property is sold to fanancier – Lease payments made – ATO will disallow claim if not at market value – Used to manipulate company position – Used to Free up Capital – Used to gain Tax Advantage – Lease payments are tax deductible

Long Term – Leverage Leasing A type of finance lease using taxation concessions relating to plant and equipment (for example, depreciation or investment allowances) which the lessee might not otherwise have been able to use fully. The method results in a lower cost of funds and is often used in the financing of high- cost 'big-ticket' items such as aircraft or industrial plant. 'Leveraging' simply means using financial muscle to make a profit far in excess of an outlay. Leveraged leasing involves, in addition to the lessor and lessee, a third party - a credit provider who makes available the bulk of the funds needed to acquire the leased item. Finance is made available to the lessor under a non-recourse loan which is often secured by a mortgage over the leased property or assignment over the lease and the lease rentals. For the lessee nothing changes under a leveraged lease agreement except that the lease rate available is cheaper than other forms of finance.finance leasetaxationdepreciationinvestment allowanceslesseefundsmeansprofitleasinglessorcreditmortgage

Long Term - Leasing Leveraged Leasing – Basically same as leasing previously – Lease payments are Tax Deductible – Must be at market values – Under Accounting Rules must appear as Asset/Liability in company accounts – Will not free up capital – Will cause Profit & Assessable Income to differ