Funding Bay Blog

Should I use asset refinance for my business?

As a business-owner – you may wish to release cash to cover short-term cashflow issues or to invest in machinery, vehicles, or technology, however it can be difficult to get the finance you need. Lenders have a high threshold for turnover and credit levels for business loans. Having the ability to leverage your existing assets through an asset refinance can be the perfect way to invest in the further assets you need with lower risk levels and more flexibility.

What is asset refinance?

Asset refinance allows you to unlock the value that exists in your current assets and to use that money to invest in further assets or as cashflow for any purpose. This is one of the most popular forms of finance available to business owners.

The structure of an asset refinance loan allows for the business owner to sell an asset to the lender in return for the agreed loan amount. The asset is then leased back from the lender for an agreed monthly payment and in some cases, the lender may give the option to own the asset once the loan has been paid off. You can also choose to let the lender keep the asset and upgrade to a newer item.

Interest rates on asset refinance tend to range from 2% to 7% and therefore compare favourably to lower interest rate options such as mortgages. The term can be up to 7 years.

The benefits of asset refinance?

Asset refinance gives the business owner a number of benefits over and above a normal loan structure, hire purchase or standard leasing.

Improved cashflow: Whether it is a short-term issue or a long-term investment strategy, this access to additional cash gives the business the flexibility to expand, buy new assets, employ new staff, pay off more expensive debts or invest in technology or software. The loan can usually also be approved quickly, giving you access to the money when you need it.

Easy repayments: Your lender will set up the refinancing with monthly payments that suit your budget. Not only does this make it an affordable way to add investment to your business, but it also offers peace of mind with the knowledge that you have one simple monthly payment.

Depreciation protection: Because you are selling your asset at a time that it has higher value, you are protected from any depreciation that occurs after the sale – yet you still can use it as you always have.

Lower credit option: Asset refinance may allow you to get a loan when a traditional loan has not been approved. This is because it uses a physical asset as collateral, giving lenders more security.

Can I get asset refinance?

The main criteria for getting asset refinance is that your business must already own an asset that the lender values at the loan amount you require. The asset used by the lender could include vehicles, machinery, or office equipment. You must prove that you own the asset and provide all the details of that asset including the make and model. This will help the lender to value the asset before making an offer to you.

You cannot refinance an asset that is still subject to finance with anther lender or that the business does not own entirely.

The disadvantages of asset refinance

It is important to understand the possible drawbacks of asset refinance. The main problems could occur if you fail to make your monthly payments. This could result in the lender ending the agreement and not allowing you access to the asset. This would also result in not being able to own the asset at the end of the term.

You should also note that you will be paying monthly interest on the loan, meaning you may pay more over time than you might expect. You should be very clear on what your payments will be and what you will pay in interest by the end of the term.

Many businesses take advantage of the flexibility that asset refinance provides. Not only is this a great option for any business that has “on-paper” assets but has lower cashflow than they require for expansion. 

There are several other asset finance options – get in touch with Funding Bay to discover which one works best for your needs.

Asset Finance Calculator

When you use our free asset finance calculator, you will find accurate pricing structures that are designed to show you how much loan you can afford

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