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Asset refinancing is available for a variety of purposes, it's main one being to release equity tied up in assets that your business owns. Assets with value can be used as security for a loan.
Asset refinance is an unusual form of asset-based lending, when compared to traditional forms of finance. The business looking for finance agrees to sell assets to a finance provider, in exchange for the provision of a cash lump sum. The business then uses this cash to purchase the asset or assets which they require.
As part of the refinance agreement, the business agrees to purchase back the asset which they have sold including interest.
If a business owns valuable assets, a refinance solution enables them to unlock the cash they have tied up from existing assets.
The businesses which benefit the most from refinancing are those who are suffering from a sudden or short-term downturn. In many situations a quick injection of cash from a refinance agreement can help the business to continue operating.
Refinancing is also useful for businesses which have a poor credit rating, as they may be turned down for traditional forms of finance. Instead of basing their decision solely on the financial position of the business, asset refinance providers will look at the value of assets.
In most businesses there will be a need to purchase high-value machinery such as: plant machinery, vehicles and new technology. When the need arises, the business has two options: to purchase using the available cash or to seek alternative finance options.
There are numerous options available to businesses seeking finance including; business loans, commercial mortgages, lines of credit and credit cards. However, recently an increasing number of businesses are seeking alternative forms of lending, such as asset finance.
This useful guide will take you through the meaning of asset refinance solutions, so that your business can effectively compare refinance options.
Asset refinance is a secured finance product for businesses, which SMEs turn to in order to release equity and ease cashflow.
Refinancing is a quick way to release the value of your business assets from your existing balance sheet and use the funds elsewhere within the business. Refinancing is ideal when you're looking to put a deposit down on new equipment or your business requires some additional working capital.
When comparing asset refinancing deals, ensure you have a clear understanding of the assets you are looking to refinance, how much they're worth and what value of the asset is tied up in an existing finance agreement. Usually a qualified surveyor will inspect and form a valuation of the assets involved.
In most situations, any high-value physical assets are eligible to be sold in a refinance agreement. However, there is a basic set of criteria including durability, identifiable, moveable and saleable. These criteria are also known as DIMS for short.
When a business applies for refinancing, the lender will base their decision on these criteria. If the asset represents a low risk, it is more likely that the business will be approved for asset refinancing. The amount available will depend on the value of the asset and in general, the agreement is very straightforward.
In recent years, an increasing number of lenders which specialise in asset refinancing are offering their services. These new providers are known for their flexible approach to asset refinancing, so both hard and soft assets are eligible for refinancing. When you begin to compare asset refinance options, you will quickly notice the flexibility of the agreements available.
It is even possible to use asset refinancing on assets where there is an outstanding balance owed to the original lender. The lender will calculate the value of the asset and then lend against any equity. In these situations, the asset refinancing provider will settle the outstanding balance with the original lender. This means that the new provider holds full ownership of the asset which is refinanced, until the final repayment is made.
With so many asset refinancing options available, it is advisable to compare asset refinance providers to find the best deal.
The term 'hard assets' is used to describe physical assets which have a high value. Examples include: machinery, heavy goods vehicles, machine lines and plant equipment. A hard asset will provide significant security when applying for an asset refinance arrangement, thanks to its high value. The majority of asset refinancing agreements involve hard assets, as they meet the DIMS framework.
The term 'soft assets' is used to describe assets which have no resale value when they come to the end of their economic life. The most common examples include: furniture, technology and security systems. The lower value reduces the security which the asset can offer to the asset refinance provider, which increases the risk. To reduce this risk the finance provider will often look for additional security, in the form of collateral, a guarantee or a deposit.
Having found the right asset refinance lender, your refinancing agreement will be set over an agreed period, which can be up to 5 years. Fixed monthly repayments will need to be made until the end of the agreement.
Your assets are used as security against the funds borrowed, which will be transferred upon completion of your application and a signed agreement being returned.
Transfer of the asset's ownership will move to the lender during the period of your agreement. You will still be able to use the assets without interruption.
The main benefit of an asset refinancing agreement is the injection of cash which it provides to the business. This will help with short-term cash requirements, but it is important to remember that there will be monthly payments to meet. Although, if the asset refinance arrangement is used to reduce repayments on an existing agreement, there are benefits to the cashflow.
It is important to ensure that the asset refinancing agreement does not exceed the estimated life of the asset. Otherwise, your business could end up continuing to make payments for an asset which is no longer used by the business.
When you start to compare asset refinance, you will notice that the interest rates are higher than those available when purchasing new equipment. This is because the finance provider considers the agreement to be a higher risk. To ensure you benefit from the best deal possible you will need to compare asset refinance options.
Once the refinancing agreement has been repaid in full, you will be released of your obligations and the transfer of ownership will revert back to the business.
Asset refinancing is an agreement between a business and lender. The benefits of using asset refinance for your business are:
Release equity from assets tied up in the balance sheet.
Hassle free, you continue to use the assets as normal.
Free up business capital, asset refinancing allows you to gain access to cash without selling your asset.
Fixed monthly costs help you to manage your budget.
Flexible arrangements with terms ranging from 1 to 5 years, you can manage your company cashflow accordingly.
Here at BusinessComparison, we specialise in sourcing competitive finance solutions for every type of business. By partnering with more than 30 lenders, we guarantee to find you the best rates for your asset refinance arrangement. Our panel includes both traditional and non-traditional finance providers, so we are able to assist businesses in every situation.
We have developed a comprehensive finance finder tool, so in just a couple of minutes you could have a list of potential finance solutions to choose from. By entering details such as how much you need to borrow, your turnover and the ideal repayment period, we can match you to suitable finance options.
Our panel offer interest rates as low as 3%, so you are sure to find a competitive option in the asset refinance agreements available. Once you compare asset refinance options, we will pass your details across to the lender who will require some additional details.
Although the approval of a finance agreement will depend on an individual basis, there are common factors considered by all lenders. These include:
In most situations the asset refinancing company will need to know the full specification of the asset to be refinanced. This will include the manufacture year, usage levels, mileage levels, serial number and the registration number.
The finance provider will also need to see your accounts and will often want to see the last few months of bank statements.
The business must have no legal notices of insolvency proceedings.
The asset must be critical to the operations of the business and it should be physically removable from the business premises. This ensures that the asset can be seized if the repayments are not met.
The loan amount must be reflective of the business's annual turnover, to ensure the repayments are affordable.
In many situations the funds can be released in just 48 hours, giving your business quick access to the cash it needs
To find out more about the asset refinancing options available to your business or to compare asset refinance solutions, please contact our dedicated team. Alternatively, if you are interested in finding out more about the finance solutions which our panel of lenders offer, please contact our experienced team today.