Using a Car Loan to Fund a Business in Gaborone

Thinking of using a car loan to fund a business in Gaborone?

Getting a loan against a vehicle is a quick, straightforward way to raise funds, but it’s important to determine whether this makes sense for your needs.

When is using a car loan to raise business funds a good idea?

When working capital is in short supply and precluding you from covering unexpected expenses or capitalising on a sound business opportunity, a car loan may be the answer.

As with all funding options, certain criteria should apply to inform your decision-making. The only time to consider a vehicle-backed business loan is in the circumstances below.

The business is not failing

If your business is ticking over and you need additional funds to expand current operations, launch a new product or service or enter a new market, a car loan is more accessible than a traditional business loan.

However, there are times when a business really is failing and there’s nothing that can be done to resuscitate it. In these instances, it’s important to accept the situation and call it a day. Taking on debt only exacerbates the problem.

It’s never an easy decision to close the doors, especially when you have employees on the payroll and a family to support. That said, knowing when to quit allows you to protect yourself financially.

You need short-term funding

A car loan is a short-term funding solution. It’s ideal for temporarily bridging a cash-flow gap or to allow your business to take advantage of a potentially lucrative opportunity.

When clients don’t pay on time, equipment or machinery fail and have to be replaced, or the store or office rental suddenly increases, a car loan can cover the funding shortfall.

With short-term funding, a business can:

• pay employees on time
• take advantage of a special deal on inventory or equipment
• cover a tax bill to avoid late-payment penalties
• pay suppliers for essential materials, services and software
• roll out a marketing campaign.

You can pay back the loan in the short-term

A vehicle pawn loan is a type of short-term loan. It’s designed to cover a temporary funding shortage.

As monthly payments are required to repay the loan, you must have the financial resources to honour the agreement.

As well as repaying the capital amount, initiation fees and interest accrue to the debt, which must be repaid within the agreed period, which is typically three months.

Your venture does not depend on the vehicle

If your business relies on the vehicle to conduct operations, a car loan is not recommended. Most reputable lenders keep your car, truck, bakkie or van for the duration of the loan.

“Pawn and still drive it” loans do exist, but these types of schemes carry unacceptably high risks. Besides having to sign ownership of the vehicle over to the lender, there’s usually a monthly rental levied for the use of the car.

In some cases, you have to “buy” the vehicle back from the lender – and that is over and above the loan repayments and rental fees.

Fail to do so and the vehicle will be repossessed – often forcibly – and sold to recoup the loan provider’s “losses”.

Potential advantages of car loans for small businesses

Provided you deal with a reputable finance provider, a car loan can be a means of financial survival for your small business.

Funds are raised quickly and documents required to support the application are kept to a bare minimum.

With this type of funding model, it’s the value of the vehicle – not past income, business performance or credit rating – that secures the loan.

Pawning a vehicle with Lamna Botswana

If you’re thinking of using a car loan to fund a business in Gaborone, here’s why Lamna Botswana should be the first choice for meeting your asset-based funding needs:

• competitive interest rates
• no hidden fees or early settlement penalties
• confidential loan agreements
• business financials not required
• compliant with the NBFIRA
• a division of a trusted finance provider in South Africa
• funds available within 24 hours.

Call Lamna Botswana now on 71 388 088 or apply for vehicle-backed business funding online.