For businesses with substantial cash tied up in various assets, managing cash flow can be particularly challenging. According to research by Ramco in 2022, UK businesses had £59 billion worth of capital tied up in unused assets and equipment. This is where Asset refinancing, a specialised form of asset finance, offers a solution.
In this guide, you’ll learn what asset refinance is, how it works, which assets can be refinanced, and its potential advantages and disadvantages.
What is asset refinance?
Asset refinance helps businesses unlock cash from assets they already own. Businesses can tap into the equity of fully or partially owned assets to secure a loan based on their value.
You don’t need to fully own an asset to refinance it. For example, if you're still paying off a hire purchase agreement on equipment, you can leverage its equity to secure additional financing. This allows you to use the value of what you already have to borrow more or negotiate better loan terms.
How does asset refinance work?
The refinancing process involves a lender settling any outstanding finance on an asset, taking ownership, and offering a loan based on its current market value. If a business fully owns the asset, it can typically access a higher percentage of its value. This funding solution improves cash flow and provides capital for growth or operational needs.
Several factors influence the loan amount a business can secure, including:
- The type of asset
- Its condition and age
- The percentage of ownership (equity)
Advantages of asset refinance?
Asset refinancing may be good for businesses who are asset-rich but cash-poor. It allows them to borrow against those assets on their balance sheet to inject a cash lump sum into their business.
Free up working capital:
Tapping into the equity within an asset can free up cash to use elsewhere in your business such as business expansion or investment.
No full ownership required:
You don’t need to completely own the asset outright to use it as security, if you're still paying off a hire purchase agreement, you can leverage its equity to secure additional financing.
Flexibility in asset selection:
Asset refinance provides you with the flexibility to choose which assets you'd like to offer as collateral based on your specific needs and circumstances.
Better loan terms:
Refinancing an asset under an existing agreement could help you secure better terms, such as lower interest rates, potentially saving you a significant amount of money over the loan's duration.
Generous repayment terms:
With asset refinance a business can spread the repayment terms, usually up to a term of five years.
Ownership:
Refinancing allows you to retain ownership of your assets, unlike selling them outright. This is important if those assets are crucial to your business’s operations, as it enables you to continue using them after the agreement ends.
Disadvantages of asset refinance?
Your asset is at risk:
If for whatever reason, you are unable to keep up with your repayments then the asset you put up as security can be removed by the lender, potentially causing disruption to your business.
Higher costs:
Compared to using your own funds for an outright purchase, asset refinancing is more expensive due to interest and associated service charges.
Increased Responsibility for Asset Care:
You will need to maintain and care for the asset more diligently than before. This includes covering maintenance costs, handling repairs, and ensuring it has suitable insurance while repayments are ongoing.
What is the difference between asset finance and asset refinance?
Asset finance helps you acquire or lease an asset without the need to buy the equipment upfront. In contrast, asset refinance allows you to unlock the cash value of an asset you already own by using it as collateral to release cash into your business. Simply put, asset finance is focused on acquiring an asset, while asset refinance is about accessing cash from an existing one.
| Feature | Asset Finance | Asset Refinance |
|---|---|---|
| Raises capital for your business | ❌ | ✅ |
| Helps acquire new assets | ✅ | ❌ |
| Uses existing assets to secure funding | ❌ | ✅ |
| Improves terms on previous finance agreements | ❌ | ✅ |
| Ideal for asset-rich businesses with cash flow challenges | ❌ | ✅ |
What assets can be refinanced?
To unlock a workable amount of capital, a business will usually have valuable assets that can be borrowed against. These are usually classed as ‘hard’ or tangible assets, meaning they are physical things like equipment or machinery which can be used to release capital to be used to fund growth.
Assets come in all shapes and sizes, but are most commonly things like:
- Commercial vehicles
- Manufacturing and engineering machinery
- Equipment
- Yellow plant machinery
Get started with Asset Refinance today
At Time Finance, we partner with brokers all over the UK to provide businesses with asset refinance solutions. We’ve helped companies secure reliable funding for a number of industries, whether that’s to pursue new avenues of production or simply improve cash flow.
Here are just a few of the sectors we work in:
- Agriculture
- Construction
- Engineering
- Manufacturing
- Transport and logistics
- And many more
Want to find out more?Get in touch with our friendly team today to see what we can do for you and your client’s business.