The South African construction industry continues to experience tough times. Given economic challenges, it’s common for companies to experience short-term cash flow issues.
Short-term finance can be a life-saver in these situations. However, obtaining this finance from banks can be time-consuming and difficult. Instead, construction subcontractors may consider using construction equipment as collateral for short-term loans. This may be an option especially between projects.
If you’re in this position, here’s what you need to know about using construction equipment to obtain bridging finance.
1. Use an accredited loan provider
A number of companies in South Africa accept construction equipment as collateral for cash loans. However, not all of these follow ethical lending practices.
Don’t fall for the latest scam, or for a loan that comes with hidden penalties and fees.
It’s advisable to consider only loan providers that are accredited by the National Credit Regulator (NCR).
2. Ask the right questions
Major car pawn companies don’t lend funds only against conventional automobiles. They may also consider offering short-term finance against other types of vehicles, including construction vehicles like motor graders and excavators.
The process for obtaining a loan against construction equipment is usually straightforward. The loan provider will need to confirm your legal ownership of the vehicle in question and perform an assessment of the vehicle before making a loan offer.
The lender will typically store the vehicle, until you’ve repaid the loan and interest.
It’s important to make sure you know and understand all the terms before signing the dotted line.
For example, ask questions like these:
- is there a penalty for early loan settlement?
- does the company charge any administrative fees?
- does the company charge for storing the heavy equipment?
- what will the total cost of the loan be?
- what security measures are in place to protect the construction equipment?
Also, check online for any negative reviews. Make sure the company has a professional-looking website and offers physical branch contact details.
3. Alternatives to using construction vehicles as loan collateral
If you don’t expect you’ll be able to resolve your cash flow issues in the near future, a loan isn’t the best idea.
It’s also not recommended that you take this kind of loan in order to pay off another, existing business debt. This can contribute to a spiralling debt problem.
In a case like this, it may be best to consider selling your construction vehicles on the second-hand market. There’s a strong market for used construction vehicles throughout southern Africa.
Also consider consulting with a debt counsellor, who may be able to help restructure debt repayments so you can maintain control of all your business assets.
At KH Plant, we buy and carefully restore selected Caterpillar 140G, 140H and 140K motor graders for resale. If you’re interested in either selling your grader or buying one of our painstakingly reconditioned graders, contact us for more information or to discuss your needs.
