When is a loan not a Discounting Agreement? The SCA Clarifies the Scope of the National Credit Act

Introduction 

Businesses routinely structure funding transactions under labels chosen for commercial convenience. As the Supreme Court of Appeal (SCA) has again confirmed, the label is not decisive. A court will look beyond the words the parties have used and determine the true legal nature of their agreement. In The Profit Hub (Pty) Ltd v Zuwon Consultants (Pty) Ltd and Another  445/2025) [2026] ZASCA 88 (24 June 2026), the SCA gave welcome guidance on three related questions, namely when a transaction is a genuine discounting agreement, when it is in substance a loan, and when the National Credit Act 34 of 2005 (the NCA) applies.

Background 

The Profit Hub (Pty) Ltd (TPH) advanced funds to Zuwon Consultants (Pty) Ltd (Zuwon) under two agreements described as discounting agreements. In return, Zuwon undertook to repay the advance, together with a factoring fee of 13%, within a defined period. Mr Ndawonde bound himself as surety.

The appeal reached the SCA in unusual circumstances. TPH's application for judgment in the High Court was unopposed by both Zuwon and its surety. The court a quo nevertheless raised, of its own accord, whether the agreements complied with the NCA, and dismissed the application on that ground. The costs consequences of that procedural history are dealt with in the conclusion below.

Substance over form 

Although the agreements were labelled as discounting arrangements, the SCA found that their substance told a different story. Unterhalter JA held that an agreement must be characterised according to its true nature, and not according to the description the parties have attached to it. The court interprets the text in its context and against its purpose in order to establish what the parties actually intended.

This approach is not novel. It is firmly established in our law. It reflects the long-standing principle in Zandberg v Van Zyl1910 AD 302 that a court gives effect to the parties' real intention, as disclosed by their agreement, rather than to the label they have chosen. It finds more recent commercial expression in Commissioner, South African Revenue Service v NWK Ltd 2011 (2) SA 67 (SCA) at para 55, where a transaction was held to be simulated because its commercial sense was to evade a peremptory statute.

Three hallmarks of a genuine discounting agreement

To distinguish a true discounting agreement from a loan, the SCA identified three hallmarks. First, a discounting agreement is a transaction in terms of which a creditor makes over its rights against its own debtors to a third party, the discounter, in return for payment by the discounter to the creditor. Second, the risk attaching to the debt passes to the discounter, whose profit or loss is a function of the value it is able to recover from the debt, measured against the cost of acquiring it. Third, the asset acquired, namely the debt, is not security for the obligations of the original creditor. It has been sold outright, and not pledged or ceded in security.

Applied to these facts, the agreements bore none of these hallmarks. TPH stood to recover no more than the amount it had advanced, together with the factoring fee and penalty charges, while any surplus recovered on the underlying claims remained with Zuwon. TPH's profit therefore derived from the fee and the penalties, and not from the value of the debts it had supposedly purchased. The underlying rights served as security for repayment, rather than as an asset sold out and out. The agreements were, in substance, loans

Did the National Credit Act Apply?

Characterising the agreements as loans did not dispose of the matter, because a loan may nonetheless constitute a credit facility under section 8(3)(a) of the NCA. The majority held that these agreements did not. A credit facility requires the credit provider to undertake to advance amounts as determined by the consumer from time to time, on an ongoing basis from which the consumer may draw at its own election, in the manner of a credit card. Here, the advance was fixed at the outset, and Zuwon had no unilateral right to determine how much to draw, or when. The agreements accordingly did not meet the definition.

Norman AJA, in a concurring judgment, agreed both with the outcome and with the characterisation of the agreements as loans, but differed on this narrower question. In her view, the deferral of Zuwon's repayment obligation, together with the escalating charges triggered by late payment, was sufficiently analogous to a store or credit card that the agreements ought to have qualified as credit facilities. Nothing turned on the difference, because, on her own reasoning, the large-agreement exclusion removed the agreements from the reach of the Act in any event.

The SCA held, in addition, that even if the agreements were credit agreements, the NCA would still not apply. Sections 4(1)(a) and 4(1)(b), read with the threshold of R250 000 fixed by the Minister under section 7(1)(b), exclude agreements with juristic persons above that threshold as large agreements. Zuwon was a juristic person and each advance exceeded R250 000. The agreements therefore fell outside the NCA, and TPH was not required to allege or prove compliance with the Act before enforcing its claim.

Conclusion

The SCA upheld the appeal and set aside the order of the court a quo, granting judgment in favour of TPH in the amount of R785 292.91, together with interest and costs. Because the NCA point had been raised by the court a quo of its own accord, and not through any opposition by the respondents, the SCA made no order as to the costs of the appeal, notwithstanding TPH's success.

The judgment reinforces a simple but important principle. A court is concerned with the substance of a transaction, and not with the terminology the parties have adopted. Describing an agreement as a discounting agreement will not alter its legal character where the commercial reality is that of a loan. For lenders, businesses and practitioners alike, the decision offers practical guidance on the structuring of commercial funding and on the limits of the NCA. Financing agreements should reflect their true commercial purpose, because a court will examine the rights, obligations and allocation of risk that the agreement actually creates, and not the description the parties have chosen.