Refinancing the assets of your business is a useful way of unlocking the locked-in equity to use elsewhere in your company. It can be used to obtain better terms or reduced monthly repayments on existing finance agreements - but what is it and how does it work? Here, we’ll explain everything to do with asset refinance so you can determine whether it’s the right financing option for you and your business.
Millbrook Business Finance are asset refinance specialists and have decades of refinancing experience in a wide range of sectors. Our refinance rates are always extremely competitive with fully flexible terms to ensure that you find a financing option that suits your requirements. If you’re interested in asset refinance for your business, our straightforward application process can provide funds within a matter of days.
What is asset refinance?
Asset refinance is a type of business finance system whereby you as a lender are allowed to unlock cash from assets that are already owned by your business. You may have previously invested in equipment but need to release funds to use elsewhere in your company, in which case asset refinancing would provide a valuable solution.
How does asset refinance work?
Asset refinancing works in a similar way to regular asset financing, although it is used for items that are already owned or partially owned by you. The agreement involves you essentially selling your asset to the financing company for a price that is based on its current value. You will then simply repay this amount in instalments over a defined period of time.
During the process, you transfer the ownership of the asset to the finance company, although you still retain its use for your business. Because the asset is no longer owned by you, the lender may use it to settle the remaining sums should you not be able to maintain your repayments. This setup is similar to taking out a secured loan where assets are used as collateral. Full ownership of the asset is then acquired once all instalments have been repaid.
Example: You have an industrial stand mixer worth £12,000. Perhaps you got it on a hire purchase agreement and only have £1,200 left to pay. This would mean that you have £10,800 of equity in the item, which is equivalent to nine-tenths of the machine. In this situation, provided it’s the right kind of stand mixer, you could refinance it up to the value of about £8,400 (70% of the mixer's overall value) — the refinance lender would pay the hire purchase firm the remaining value of £1,200, take charge over the asset, and lend you £8,400 based on its value.
What is meant by "equity"?
Equity - also commonly referred to as shareholders equity - refers to an asset that has a debt attached to it. If we take the above example, you would have 90% equity in the asset because they own 90% of the asset. This means they have 90% equity of the original £12,000. Your equity, therefore, determines how much you are able to borrow in your asset refinancing agreement.
What to look for when researching refinance lenders?
1. How long is the borrowing period?
The borrowing period is important as it refers to the amount of time it will take to repay your loan. It also determines the size of the instalments that you pay. At Millbrook Business Finance we can offer repayment terms of up to 7 years with fully flexible repayment terms available.
2. What is the interest rate on the asset refinance facility?
Interest rates refer to the percentage you will pay to borrow the funds from your lender. At Millbrook Business Finance, all of our interest rates for asset refinancing are extremely competitive.
3. What is the advance rate against the various assets?
The advance rate is the percentage amount of the value of the collateral that the lender is willing to lend. It is used to set an advanced rate for the asset, which is particularly useful for items that fluctuate in value. The advance rate will be determined at the beginning of the process so make sure it is suitable.
4. How much will I pay for the finance facility in the long run?
It goes without saying that comprehensive planning should be carried out before entering a refinancing deal. You should always consider the total cost and whether it will be viable in the long run. This can be discussed with your lender.
5. Are there charges for early repayment?
Some financing companies will charge for early repayments - make sure to understand the terms of your agreement fully before going ahead with asset refinance.
What are the benefits of asset refinance?
Asset refinance gives you full flexibility to manage your business finances in a way that suits you. There is a wide range of assets that can be refinanced and your funds can be used in any area within your business.
From applying for asset refinance to acquiring the funds, the entire process can take as little as just a few days. Once your application has been submitted to Millbrook Business Finance, our team will review it and grant a decision within 48 hours. Once the agreement has been sent back to us, we will process, activate and release your funds.
One of the main benefits of asset refinancing is that it allows you to manage your cash flow during periods when you need it most. By leveraging the value of your assets you can implore the flow of money coming in.
Because the terms of your agreement can be fixed, you can fully plan the finances of your business, creating a higher level of stability.
The drawbacks of asset refinance
To access asset refinance, a lender will carry out a full credit check on your business. This will show up on your credit report and may affect your credit rating.
Additional charges may occur if payments are defaulted or paid off early, so it’s important you read and fully understand your agreement beforehand. Late payments may also affect your credit report.
Potential loss of assets
One of the most obvious drawbacks of asset refinance is that you have the potential to lose your assets should you not be able to repay your loan.
Asset refinance offers you ample opportunity to optimise your cash flow and working capital for much-needed business requirements. To ensure that asset refinance is the best finance solution for your needs, consider the above points and weigh up the benefits and drawbacks of asset refinance carefully before entering into an agreement. Done correctly, and with the support of the right asset refinance partner, your business can be well on its way to unlocking equity in your owned assets to meet changing demands with ease.
Asset refinancing with Millbrook Business Finance
Millbrook Business Finance offers a wide range of asset refinance options that are fully flexible to suit your business's individual needs. We can refinance the existing agreement with your current lender and arrange bespoke terms that fit your requirements, regardless of the size or industry of your business.
If you’re interested in unlocking the potential of your assets by releasing locked-in equity, contact Millbrook Business Finance today. Submit an enquiry today or phone a member of our friendly team on 0333 015 3301.