Refinancing Can Help Free Up Vital Working Capital
Asset refinancing is a way of making existing assets work harder for you and can help provide a welcome injection of working capital into the business at a time when it is needed most.
Business of all sizes can benefit from the introduction of working capital for a variety of reasons, including expansion, new contracts or setting up new projects.
But with many banks making their lending criteria more stringent, easy access to business funding can often be limited.
The refinancing of existing assets is a neat solution to this problem and makes assets work harder for the benefit of the business, without having to fulfil the strict lending criteria of some funders on new assets.
How does it work?
Asset refinancing is usually only available on assets, such as equipment, plant and machinery and vehicles, that the business owns in full and not those that are currently subject to any existing or outstanding financing arrangements.
However, it may be possible, subject to certain provisions, to borrow against the existing equity within an asset even if the financing is not yet paid off in full. It’s always best to discuss with your funder the opportunities that are available.
As with conventional asset finance, once a business asset is refinanced, the business makes agreed monthly payments over the contracted period until the sum, plus any interest, is repaid.
From a lender’s perspective, asset refinancing uses existing assets as security. Because the finance is secured against a physical asset, the lender has the reassurance that if things go wrong and the business can’t keep up with repayments, they can take the asset to recoup their losses.
This lowered risk gives the lender more confidence in lending to the business, and often means they won’t require a personal guarantee or a deeper look into the business’s credit history.
Why is it popular?
One of the main reasons that asset refinancing is so popular is because it allows businesses to free up working capital on assets that they are already using, whereas most of the traditional types of financing only offer financing on brand new machinery, equipment or vehicles that have not previously been used.
Another reason is that some business owners find themselves in a position where they require an injection of cash quite quickly and, providing the business meets the criteria set out by the lender, approval can be fast and efficient. This means the business can often have the required cash injection in a matter of days.
Many of the advantages that apply to asset finance also apply to asset refinance. For example, monthly repayments are made over an agreed term, and subject to payments being adhered to the terms of the agreement, the lender can’t call this in early, unlike a bank overdraft, helping the business better manage its cashflow over the period of the agreement.
What information will any funder require about the asset?
One of the key differences with asset refinancing is that the business will typically have to provide the lender with detailed information about the asset that is being refinanced, especially proof of ownership and current usage so that it can be accurately valued.
Information required will include:
• Make and model of the asset
• Year of manufacture
• Year of purchase
• Usage in terms of hours or miles
• Proof of purchase
What are the benefits of asset refinancing?
1. It’s quick and easy. Business refinancing in this way can provide a fast injection of working capital and an immediate impact on cash flow.
2. It involves existing assets, not new ones. Refinancing options can be chosen according to a business’s particular requirements and revolve around existing, not new, assets.
3. It frees up capital when required. It provides a means of a carefully targeted injection of funds at exactly the right time to meet certain set business objectives.
4. It provides security. From a lender’s perspective, refinancing a business asset provides additional security against the value of the loan and make them more likely to provide funds.
With years of experience supporting businesses across the UK, Anglo Scottish Asset Finance provides a dedicated business finance service to its customers, whatever sector they specialise in, with asset refinancing just one of many finance options.
Our business finance managers have years of experience, enabling them to make the right recommendations and you to get the most from your business finance or refinance solution.
Want to find out more about your refinance options? Then get in touch with Anglo Scottish Asset Finance today.