What is Refinance?
A quick way of accessing the value of your assets is through refinancing, releasing the capital tied up in those assets.
Refinancing or Capital Release allows you to use this value to fund other aspects of your business. Easing cash flow, consolidating debts or funding a deposit on new equipment are just some examples.
There are several types of refinancing available, with one of the most common being Sale and HP Back. We purchase your asset and finance it back to you. Ownership of the asset returns to you at the end of the refinance term, and repayments are calculated based on the income stream generated by the asset.
Sale and HP Back is suitable for machinery finance and most types of equipment. It works for most company sizes and types, including sole traders.
You can use this form of refinancing for assets that you own fully or that are under finance with another provider. However, you need to consider all the financial implications of this, especially if you are considering remortgage for debt consolidation.
Asset refinance Options
Other options that come under asset refinancing include:
- Combining asset finance with other finance
- Consolidating business debt.
- Using an asset as a security for a loan.
Combining refinancing with other finance options
Lenders base their finance offer on the equity you hold in your asset, meaning you don’t need to own the asset outright to benefit from refinancing.
While it means you cannot borrow more than an asset is currently worth. It also means you can unlock sufficient cash across different assets or by combining refinancing with other forms of finance.
It is important to remember that you still need to make any outstanding hire purchase payments as well as make payments on the refinance. You also need to ensure the terms and conditions of any other refinance mortgage or machinery finance are transparent and affordable over the long term.
Benefits of Refinance
- Choice – Provide your business with a cash injection or purchase other assets that may not be accessible through leasing agreements or hire purchase
- Efficiency – Your use of the asset is uninterrupted
- Make quick decisions – Negotiate business contracts more efficiently and effectively, knowing you can release capital when needed.
- Spread the cost further – We can take over and extend the term of a finance agreement you have with another provider
Asset refinance example
Bob’s waste management company has a piece of equipment worth £10,000. It was acquired using a hire purchase agreement. Bob has £2,000 outstanding on the arrangement, meaning he has £8,000 equity in the asset. Bob’s firm owns eight-tenths of the equipment; the hire purchase provider owns the remaining two-tenths.
Assuming it is the right kind of equipment, Bob could refinance up to 70% of the value he owns, providing around £5,500. The remaining £2,000 machinery finance owned to the hire purchase firm would be paid by the refinance lender, who then take charge of the asset and lend Bob £5,500 based on its value.
The key to refinancing is equity
If Bob owned the equipment outright, he’d be able to raise more money. In the above example, Bob owns an £8,0000 asset because he has 80% equity of £10,000. If he were to hold it entirely, his equity would be the full £10,000.
We can apply the same logic to any asset that a lender accepts as security.
If Bob owned property worth £500,000 and had £100,000 remaining on his commercial mortgage, the asset is effectively worth £400,000. That would be the amount considered in any refinance mortgage or other loans he considered.
Ensure you understand the terms and conditions of any refinancing plan and don’t borrow more than you can afford. Take a long- and short-term view of your finances to ensure you are not storing up financial difficulties for the future.
Consequences of not keeping up with repayments
As with any asset based lending, financing or purchasing plan, you risk losing the equipment if you cannot keep up with your repayments.