Asset refinancing is a financial product that falls under the asset finance umbrella. It is an incredibly useful tool that allows businesses to free up equity held within fixed assets of a high value such as machinery or equipment.
Many business owners do not realise that asset refinancing is an option, meaning large amounts of capital are tied up in expensive assets that could be better utilised elsewhere.
But what exactly is asset refinancing? When can businesses benefit from it? And is there a difference from asset financing? Read on to learn all about how these financial products could help your business raise capital.
How does asset refinancing work?
Much like securing capital through asset-based lending, asset refinancing allows you to get credit that is secured against fixed assets owned by your business. This means that should you fail to make payments on time, the lender can remove said assets to cover the cost.
Asset refinancing is a popular way for businesses to release cash, should there be a need for it elsewhere in the company. When applying, the lender needs to know the details of any asset being used. This includes how it is used, its current value and rate of depreciation. Usually, the lender will send a surveyor out to confirm these details before finalising the contract.
Crucially, when you receive the funds you will be transferring ownership of these assets to the lender. Whilst they now own the asset, you will still be able to use it without any interruption. When the debt is cleared, ownership is returned.
What is the difference between asset finance and asset refinance?
Asset financing and asset refinancing are essentially the same product in that they allow businesses to secure loans against the value of fixed assets. However, where they differ is the situation in which they apply.
Asset finance is used when there is no preexisting loan agreement in place and the business is looking to acquire finance against assets for the first time.
Asset refinance, on the other hand, is used when there is a pre-existing loan or credit agreement in place and the borrower is looking to change the terms of their contract using fixed assets.
How is asset refinance repaid?
As with all loans and credit agreements, a contract is put in place based on the value of the loan. The contract will depict the value and regularity of fixed payments over the agreed period. This often ranges from between one and five years.
These payments will cover the repayment of the loan plus any interest accrued. If these payments are not met, the lender has the right to remove the assets in order to cover the cost.
Our team of finance experts are on hand to advise and guide you through the process, should you need to secure finance for your business. We offer a range of finance solutions including asset-based lending, asset financing and business development loans. Speak to our team and begin your application today.
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