South Africans urged to mitigate personal risk ahead of repo rate announcements
Charles Meyerowitz, co-founder and CEO of Lamna, a specialty asset backed financier, says that in light of these persisting challenges, South African consumers and SMEs should carefully assess the type of debt they take on. “South Africa’s uncertain economic climate continues to pose significant challenges for borrowers and as a result people should consider alternative funding sources that don’t require personal sureties,” says Meyerowitz. “Traditional lenders usually require that you sign sureties and therefore put yourself at risk when taking on debt.”
With businesses needing access to cash in order to trade and grow, Meyerowitz suggests looking at a range of funding solutions to enable the required cash flow. “Exploring alternate avenues to generate cash flow, such as asset-backed lending, allows professionals to not only mitigate personal risk by avoiding excessive long term debt, but also enjoy immediate liquidity.”
With roughly 11 million individuals categorised as over-indebted, Meyerowitz points out that South Africa remains among the world’s most debt-heavy nations. “Amidst continued burdens of household debt and rising debt service costs impacting South Africans on a consumer level, ratings agency Moody’s stated in their most recent credit review that, on a national level, they believe the debt burden in the country would reach about 55% of GDP in the fiscal year 2018/2019.”
However, Meyerowitz points out that many individuals and SMEs who may be experiencing short term cash flow issues are still considerably asset-rich, and should consider utilising ‘lazy assets’ to bridge this gap. He explains that ‘lazy assets’ are assets that, while valuable, are not being utilized to their full potential.
Meyerorwitz says that those that do find themselves in this situation could consider asset-backed lending as a means to bridge times of short cash flow. “As an alternative to the traditional bank debt structures, businesses can use collateral built up over time that may not be currently used but still hold vallue– in order to obtain asset-backed loans. Essentially, this is way to make their existing assets ‘sweat’ without incurring any personal liability and is ideally suited to funding business growth.”
Meyerowitz says that asset backed lending is often used by many strongly performing businesses. “This short term bridging solution is considered a mainstream financing source that any asset-rich business with a need for additional cash flow flexibility make use of, and in addition to being easier to obtain, these short-term loans carry fewer restrictions and have no impact on credit ratings.”