What is Asset Refinancing?
Asset refinancing has a few different meaning depending on the context it could refer to;
- Secured Business Loan – using an asset as security for a loan.
(Secured business loans are suitable for businesses that own assets like commercial property, vehicles and machinery, or company directors that don’t want to offer a personal guarantee. There is a wide range of lenders on our panel offering secured business loans and the amount you can borrow is based on the value of the asset(s) you have available.)
- Asset finance combined with or in addition to other finance
- Debt consolidation – Refinancing business debt
Asset Refinance Benefits
The advantage of refinancing is that you don’t need to own the assets outright, because lenders will base their offer on the equity you currently hold. Refinancing is always limited by the value of the assets on offer. You couldn’t borrow £10,000 secured against an asset of £5,000, but with enough equity in an expensive items, you could still unlock a sufficient amount of cash for your requirements.
That means that if you’ve got a piece of equipment through Hire Purchase for example, you could raise finance against it even with the money still to pay off to the hire purchase provider.
Asset Refinance Example
Andy’s construction firm has a piece of machinery worth £10,000. He got it on hire purchase agreement, and only has £1,000 left to pay. That means he has £9,000 of equity in the asset – or to put it another way, Andy’s company owns nine-tenths of the machinery and the hire purchase provider owns the remaining tenth.
In this situation, provided it’s the right kind of equipment, Andy could refinance his company’s machinery up to the value of about £6,000 – so 70% of the items overall value.
The refinance lender would pay the hire purchase firm the remaining value of £1,000, then take charge over the asset and lend Andy £6,000 based on its value.
Equity is the key to refinancing!
The arrangement would work similar if Andy owned the asset outright, but in that scenario, he’d probably be able to raise more money against it.
In the first example above, Joe effectively owns an asset worth £9000.00 because he has 90% equity of £10,000; in the second case he owns 100% of it so his equity is worth the full £10,000.
You can apply the logic to any asset that a lender will accept as security within their criteria. If Andy owned a commercial property worth £500,000 and had £200,000 of a Commercial Mortgage left to pay off, he effectively owns an asset worth £300.000, and might be able to refinance and get a loan based on that value.