Business asset funders, Business Partners, have clarified the royalty clause in their loan agreements, which has caused frustration and led to several court cases involving clients in financial difficulties.
Business Partners provides asset finance of up to R5 million to established and viable businesses. The company says the royalty clause is a protective measure against defaulters.
A royalty agreement is a legal contract allowing the use of the owners intellectual property in exchange for royalty payments. Business Partners, established in 1991, signs off on loans up to a billion rand annually to help entrepreneurs finance business equipment . However, the company has faced criticism for the royalty clause in its loan agreements, although it has won all related court cases.
Executive General Manager for Impact Investing at Business Partners, David Marobe, says the clause ensures loan repayment if the client cannot make payments.
It is a way of deferring repayments to match the cash flow of the business. In some instances, we know after doing an assessment of the risk involved in funding the particular transaction that this is the risk and this is the pricing that will match the risk involved in us undertaking or doing this transaction. But the cash flows of the business are not able to afford it today, so we can keep the interest rates maybe flat at maybe prime or prime plus one, says Marobe.
