What is Unencumbered Cash

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what is unencumbered cash

“What is unencumbered cash?” is an important question commonly asked by entrepreneurs and individuals. Unencumbered cash refers to free cash that is not bonded or borrowed from anyone. This includes money in the bank, an investment available for drawing or cash from selling another asset, or even the proceeds of a pension payment.

Unencumbered cash includes all cash and cash equivalents held by an organisation and its subsidiaries in the primary jurisdictions that are not subject to any lien by any person, other than involuntary liens which arise by statute or operation of law.

Within a business franchise context, unencumbered funds is the franchisee’s own cash available in liquid form. These funds are not obtained from a bond or any other loan as this increases the debt level of the franchisee in their personal capacity. Franchisors and financial institutions require the franchisee to invest in the business to circumvent the risk of over-gearing the business by having to make large monthly repayments, which a start-up business is unlikely to be able to afford.

Franchisees are usually required to invest a minimum of 50% of the total investment and may finance the balance. An adequate unencumbered balance can serve as a financial cushion, reducing the risk associated with unexpected expenses or revenue shortfalls. This also shows the franchisor and the financial institutions that the franchisee has intent and is willing to take some risk. The franchisee must have the collateral to borrow the funds against and prove affordability from their personal balance sheet. The amount of unencumbered cash that a franchisee has will dictate the type of franchise that they can afford.

DTC specialises in business finance and assists with the finance process for SMME’s from start to end. We have South Africa’s largest network of finance partners that include venture capital companies, private equity firms, government BEE initiatives, banks, angel funds, crowd funds, Silicon Cape investment companies, and rent to own funding initiatives. We are able to develop quality developments to provide you with the highest chances of success with your application, combined with an expansive network of funders and grant providers in the country.

For more information – Get in touch with DTC