When Is Asset Refinance Right For Your Business?

Posted by Emma Robison on Aug 27, 2019 4:48:00 PM
Emma Robison
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Often businesses turn to asset financing to acquire an asset on favourable terms, whether through leasing or hire purchase. However, asset refinance can also be used as a rapid source of access to cash funds, with fewer barriers to funding than other types of borrowing.

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How Does This Work?

Often businesses find themselves asset-rich but cash-poor. If you own expensive industrial plant, machinery or equipment, you could have tens or hundreds of thousands of pounds tied up in various assets – which is inaccessible for growth or cash flow purposes. Asset refinance is essentially a secured loan with the asset as security. The asset is temporarily re-financed to an asset finance company, who loan you cash to an agreed percentage of the value of the asset. You then repay the loan on regular monthly terms for an agreed period.

Ownership & Risk

During the term you retain use and de facto ownership of the asset, but legal ownership may reside with the lender until repayments are complete. You therefore risk losing the asset if you default on payments and you should consider your ability to pay before refinancing an asset in this way.

When Should I Use Asset Refinance?

There are many different circumstances. These range from times of investment and growth to simply taking control of cash flow.

All companies experience bumps in the road. Asset refinance is sometimes used to ensure that short-term funding requirements such as payroll are covered, although you should always consider whether these needs may develop into longer-term financial problems. Asset refinance can however assist with funding a strategic investment, innovation, or to keep the supply chain flowing – at a time when the business has a consistent turnover and positive growth prospects.

This being said, some asset-rich sectors are seasonal with predictable fluctuations in cash flow, such as agriculture or forestry. For businesses such as these, asset refinance is a safe way to plan for quiet patches. With good financial advice, asset refinancing can be a useful lever during these times, but the key to minimising risk is predictability. Risk increases markedly if asset refinance is used as a stop gap in volatile sectors, including retail and some commodities markets without strong planning strategies in place.

The Right Level Of Risk

When you borrow against an asset, it is important to have confidence in your ability to repay. Different business owners also have varying levels of tolerance for risk. An independent broker such as Business Finance Solutions Ltd will find a good match with an experienced lender, who will want to make sure that the reason for the finance is justified and the repayment schedule realistic.

If you think that your business could benefit from asset refinance, we are here to help. Simply give us a call on 0845 50 50 888 to arrange your free initial consultation.

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Topics: Asset Refinance

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