Asset finance for your business: instalment sale, lease or sale-and-leaseback?

What is asset finance, and when should a business use it?

Asset finance is credit for buying or using a specific asset: a delivery vehicle, a packing line, a tractor, a server room, a solar array. Because the funder can recover and sell the asset if you stop paying, it is usually easier to obtain than an unsecured loan of the same size.

Use it when the need is a physical asset that will earn its keep over several years. Do not use it to fund day-to-day cash flow, which is a working capital problem, or to buy another business, which is a different structure altogether (see how buyers finance an acquisition). For general borrowing against the business rather than an asset, see business loans.

What are the main asset finance structures?

• Instalment sale. You take delivery and use the asset; the seller or financier stays the legal owner until the price is paid. You carry the risk of loss from delivery and must insure the asset, normally with the funder noted as an interested party. If you default, the whole balance can fall due and the funder can recover the asset.
• Finance lease. Rentals are set to recover the funder's full cost plus a return, so it works like a financed purchase. The funder owns the asset during the term and it usually passes to you at the end, outright or on conditions such as a purchase option. You normally carry maintenance and insurance.
• Operating lease. You rent the asset and return it at the end. The funder keeps ownership and usually the risks of owning it, and in a full-maintenance lease it also looks after upkeep.
• Sale-and-leaseback. You sell an asset you already own to a funder and lease it back, which turns equity tied up in the asset into cash. It is useful when the business owns valuable equipment outright and needs liquidity, but the tax treatment needs care (see below).

Courts look at what the contract actually does with ownership and risk, not what it is called, so read the clauses and not the heading.

Which structure suits which asset?

Match the structure to how long you will keep the asset and how fast it dates:

• Long-lived assets you intend to keep (trucks, production machinery): an instalment sale or finance lease, because you want to own it at the end and you can use the allowance on its cost.
• Assets that date quickly (computers, specialist technology): an operating lease, so that you hand back an obsolete asset instead of being stuck with it.
• A paid-for asset and a cash need: sale-and-leaseback, if the numbers beat borrowing against the business another way.

What does asset finance cost, and what does a balloon payment really do?

This is an illustration with assumed figures, not a quote. A business buys a machine for R1,500,000, pays a 10% deposit (R150,000) and finances R1,350,000 over 60 months at 12.75%, which is the prime lending rate (10.75% at the time of writing, following the 24 September 2026 Monetary Policy Committee decision) plus 2%. Rates and fees vary by funder, your track record and the asset; always check the current rate.

• No balloon: the instalment is about R30,544 a month. Over 60 months you repay about R1,832,650, so the finance cost is about R482,650.
• With a R300,000 balloon (a 20% lump sum due at the end): the instalment falls to about R26,944 a month, which is R3,600 a month less. But you repay about R1,916,640 in total, so the finance cost rises to about R566,640, roughly R84,000 more.

A balloon eases the monthly cash drain and defers a large payment to the end, when you must refinance it, pay it, or sell the asset to cover it. That is sensible when the asset will keep real resale value and your cash is tight now; it is expensive if it is just a way to make an unaffordable asset look affordable.

When you compare quotes, set them side by side on the total repaid, and ask about:

• whether the rate is fixed or moves with prime;
• initiation and monthly service fees;
• the deposit and any balloon or residual;
• insurance requirements and who the policy must name;
• settlement terms if you want to pay it off early.

How does tax treat asset finance?

For an instalment sale, SARS Interpretation Note 47 says a purchaser under an instalment credit agreement can claim the section 11(e) wear-and-tear allowance on the asset even before becoming the legal owner. The allowance is based on the cash cost excluding finance charges, with delivery and installation included, and SARS publishes accepted write-off periods; for example, passenger cars are written off over 5 years, delivery vehicles over 4 years and personal computers over 3. Assets that qualify under a specific section, such as the allowances for renewable energy or manufacturing, follow those sections instead.

Leases are different. The lessor claims the allowance, and the treatment of your rentals depends on how the lease is structured. Sale-and-leaseback has its own anti-avoidance rules; for instance, section 23G denies the allowance in certain arrangements. Ask a tax practitioner to review any lease or sale-and-leaseback before you sign.

Does the National Credit Act apply to a company?

Often not. As we understand section 4 of the Act, it does not apply where the borrower is a juristic person whose asset value or annual turnover, together with related juristic persons, is R1,000,000 or more. Below that figure, the Act still does not apply to a “large agreement”, meaning a credit transaction with a principal debt of R250,000 or more. Smaller agreements with a small company, and agreements with individuals and sole proprietors, can fall inside it. A finance lease that passes ownership at the end is a credit transaction; a true operating lease is generally not.

It matters because, where the Act applies, the funder must give a section 129 notice and normally obtain a court order before repossessing. Where it does not, the contract governs, but a funder may still not take the asset by self-help. The R1,000,000 and R250,000 thresholds date from 2006 and the law requires the Minister to review them, so check the current position.

What will a funder ask for?

Funders typically want the supplier's quotation or invoice describing the asset (make, model and serial or chassis number), recent bank statements and annual financial statements, management accounts, your SARS tax compliance status, proof of insurance, and the deposit. A newer business, or one with a thin record, may be asked for a larger deposit or a personal guarantee. Having these ready before you ask shortens the process.

Caban works on funding needs of R1,000,000 and above. For a single vehicle or a small piece of equipment, the dealer's finance house or your bank will usually be faster. For larger programmes, fleets, plant or a mix of debt and equity, mezzanine or a structured package may suit you better, and the funding finder shows the options in two minutes.

Sources. SARS, Interpretation Note 47 (Issue 5): wear and tear or depreciation allowance (section 11(e)); National Credit Act 34 of 2005, section 4, as summarised by MJ Kotze Inc, NCA thresholds for juristic persons; MJ Kotze Inc, Instalment sale agreement and Equipment lease agreement; South African Reserve Bank repo rate decision of 24 September 2026 and the resulting prime lending rate. The cost comparison is illustrative and uses an assumed rate and no fees.