For British businesses that own commercial vehicles, plant, and machinery, asset refinance offers a practical solution to unlock capital tied up in these assets. Asset refinance can be a strategic way to improve cash flow, fund growth, or consolidate debt, all while leveraging existing assets. Here, we’ll cover how asset refinancing works, the benefits and drawbacks, and what businesses need to know to secure lending.

What Is Asset Refinance?

Asset refinance involves using owned assets, like commercial vehicles, plant, and machinery, as collateral to secure a loan. The finance provider assesses the current market value of these assets, and based on this valuation, the business receives a lump sum loan. Unlike new asset financing, which is geared toward purchasing new equipment, asset refinance taps into the value of existing assets, enabling businesses to reinvest in their operations without acquiring additional physical resources.

Why Would a Business Choose to Refinance?

Businesses may pursue asset refinance for several reasons, including:

• Boosting Cash Flow: Releasing equity tied up in valuable assets can provide immediate liquidity, allowing the business to cover operational expenses or invest in new opportunities.
• Consolidating Debt: Asset refinance can help consolidate existing debts into a single repayment structure, potentially with better terms.
• Financing Expansion: Businesses looking to expand can use asset refinance to fund new projects, hire staff, or enhance operations.
• Reducing Financing Costs: Refinancing can sometimes offer lower interest rates or improved terms compared to other forms of borrowing, especially if the assets have substantial value.

Types of Assets That Can Be Refinanced

Common assets suitable for refinancing include:

• Commercial Vehicles: Trucks, vans, and fleet vehicles owned by the business can be used as collateral.
• Plant and Machinery: Equipment used in manufacturing, construction, agriculture, and other sectors.
• Specialized Equipment: Equipment with a robust secondary market, such as printing machines, medical devices, or agricultural tractors, can also be refinanced, given their established resale value.

Information Required to Secure Asset Refinance

To secure asset refinance, businesses need to provide comprehensive details about both the assets and the financial health of the company. Lenders typically require:

1. Asset Valuation Details: Information about the make, model, age, and condition of each asset. Lenders may also ask for recent valuations.
2. Proof of Ownership: Documentation proving the business fully owns the assets being refinanced.
3. Financial Statements: Recent balance sheets, income statements, and cash flow reports to assess the business’s financial health.
4. Purpose of Loan: Lenders often want to understand how the business plans to use the refinanced capital.
5. Credit History: Information on past borrowing and creditworthiness, as this affects the interest rate and terms.

The Role of Brokers in Asset Refinance

Brokers can be invaluable in the asset refinancing process. They:

• Assess Suitable Lenders: Brokers can identify lenders that specialize in asset refinance, saving businesses time and potentially finding better terms.
• Negotiate Terms: Experienced brokers can negotiate on behalf of the business, securing favourable interest rates and flexible repayment structures.
• Simplify the Process: Brokers manage the paperwork and streamline the refinancing process, which can be complex, especially for businesses with multiple assets.

Pros and Cons of Asset Refinancing

Pros:

• Access to Capital: Frees up funds tied to owned assets without needing to sell or acquire new equipment.
• Flexible Terms: Depending on the asset’s value and the lender’s policy, asset refinance can provide terms tailored to cash flow needs.
• Potentially Lower Interest Rates: Compared to unsecured loans, refinancing based on valuable assets can offer lower rates.

Cons:

• Risk of Repossession: If repayments are missed, lenders may repossess the assets, which could disrupt operations.
• Higher Rates than New Purchase Finance: Refinance interest rates may be higher than rates for brand-new asset purchases, as lenders are taking on second-hand collateral.
• Asset Depreciation: For assets that rapidly lose value, refinancing may offer less attractive terms.

Interest Rates: Refinance vs. New Asset Purchase

Interest rates for refinancing can vary but are generally higher than rates for new asset purchases. This difference exists because lenders often view refinancing as riskier due to the age and depreciation of the assets. However, assets like commercial vehicles or machinery with a robust secondary market can still attract favourable terms, particularly if they retain significant resale value. Rates are also influenced by the asset type, condition, and the borrower’s credit profile.

Is Asset Refinance Right for Your Business?

Asset refinance can be a powerful tool for businesses that need quick access to capital without purchasing additional assets. However, it’s essential to consider the long-term implications, particularly the risk of repossession if cash flow issues arise. Consulting a broker or finance expert can help assess whether asset refinance aligns with your business’s financial goals and operational needs.

In sum, asset refinance can provide UK businesses with a valuable lifeline, whether to address immediate cash flow challenges, consolidate debt, or fund expansion. With the right preparation and guidance, businesses can make the most of this financing option while protecting their assets and growth potential.

For more information and to discuss your asset finance needs please call MacManus Asset Finance on 01443 800621 or email info@macmanus.finance.