Find out about asset refinancing and how it can help your business.
What is asset refinancing?
Asset refinancing allows your business to improve cashflow by using the equity built up in assets already on your balance sheet. It can be useful if you want to put down a deposit on a new piece of equipment, reduce your monthly commitments or make new company acquisitions.
You can refinance an asset even if it is not wholly owned by your business, and the amount of equity available is a key factor in determining how much money you could borrow against the asset.
How does asset refinancing work?
The funder will establish how much equity remains in your asset and will offer a percentage of the figure as a lump sum to your business, before taking ownership of whatever it is you’re refinancing.
If you only own part of the asset, the funder will pay off the original funder and then advance the lump sum under pre-agreed terms.
The amount advanced depends on the asset type, condition and age.
Refinancing typically takes place over various term lengths – it depends on your business type, time trading and a few other parameters. Once the agreement ends, ownership of the asset will usually revert to your business.
What are the advantages of asset refinancing?
- A quick injection into your cash flow
- You regain ownership of the asset at the end of the term
- Protects your company from asset depreciation
- Restructuring all your existing debt can reduce your current monthly repayments
- If you are not eligible for an unsecured loan, asset refinancing offers an alternative
Is asset refinance a good option for your business?
Asset refinancing may be a suitable option if your business is asset-rich but cash-poor. For example, if your business has £3m worth of assets but very little in cash reserves.
Leveraging the value of your balance sheet assets in this way releases valuable working capital and could help your business grow.
Asset refinance would also be worth considering if you want a cash injection to boost working capital, or to cover an unexpected cash shortfall or costs.
Refinancing assets provides an alternative line of credit without affecting existing bank financing and doesn’t reply on your credit rating or business performance.