In the last few years, the cost-of-living crisis has caused prices to rise across nearly every sector. The cost of supplies, equipment, machinery, and vehicles have all increased causing many business owners to keep a close eye on cash-flow.

Additionally, following the pandemic, businesses are securing new contracts and work is continuing. However, the rising costs of business-critical assets required to fulfil contracts are putting business owners in a difficult position. Do they turn down work as they can’t afford the asset required for the contract? Or do they damage their cash flow with costly purchases which could have a detrimental effect on working capital?

Cash Poor, Asset Rich

Many of these businesses often have a large amount of their cash tied up in their existing assets.

Asset refinance is a simple cash-flow solution which allows a business to release equity held in their current assets. The funds can then be reinvested into the business or to simply assist with cash flow whilst still enabling a business to continue using their assets in normal day to day operations. The funds could even be used to purchase new assets, allowing the business to take on contracts that they may not have been able to undertake.

Types of Assets That Can Be Refinanced

Asset refinancing can apply to a wide variety of business assets. Common assets that businesses often refinance include machinery, vehicles, and equipment. Companies across many industries—such as construction, manufacturing, and transportation—frequently refinance their capital assets to improve cash flow and fund operations. Essentially, if the asset holds some value and is crucial to the business, it may be eligible for refinancing.

How Does It Work?

To explain how refinancing works, let’s use an example involving a construction company. The company owns an excavator under a Hire Purchase agreement for £50,000 and has been paying it off through fixed monthly payments. With £10,000 left to pay on the agreement, the company currently owns 80% of the asset.

The company require funds to fulfil a new contract. The underwriting process will assess the current value of the excavator, and based on the loan-to-value, the remaining finance will be settled, with the balance then paid to the customer.

Similarly, if the asset is owned outright by the company, it may be possible to refinance for a higher amount, as there are no existing finance agreements to settle during the process.

Benefits of Refinancing

Refinancing can be applied to assets that are currently under a Hire Purchase or Finance Lease agreement. By refinancing these assets and consolidating agreements, businesses could reduce their monthly outgoings while releasing equity in the process.

Assets do not need to be fully owned to release the equity tied up in them. As previously mentioned, existing agreements can be included as part of the new refinance agreement.

Opting for asset refinancing also provides greater cash flow flexibility. The cash released can be used throughout the business—whether for purchasing new equipment and vehicles, funding company expansion or refurbishments, or investing in staff development and new hires.

Ultimately, refinancing gives the business more operational flexibility and reduces financial stress.
A fixed interest rate throughout the agreement also ensures predictable cash flow management, as business owners will know exactly what their monthly payments will be.

Refinancing can benefit businesses across various industries, including construction, manufacturing, agriculture, transportation, haulage, printing, and more.

Risks and Considerations

While asset refinancing can offer significant benefits, it’s important for businesses to be aware of potential risks. Overextending cash flow by refinancing too many assets can lead to financial strain. Additionally, asset depreciation can impact the amount of capital released through refinancing, so businesses should factor this into their decision-making.

Conclusion

Asset refinancing is a powerful tool for businesses looking to improve cash flow without sacrificing their essential assets. By understanding how it works and the potential benefits, businesses can make informed decisions about whether refinancing is the right solution for them. Whether it’s to take on more contracts, invest in new equipment, or simply ease cash flow challenges, asset refinancing provides flexibility and financial relief in uncertain times.

https://www.kingsleyassetfinance.co.uk/funding-solutions/refinance