The Benefits of Refinancing Assets

The Benefits of Refinancing Assets

When is a Warehouse Not a Warehouse? When it’s a Money Box!

Ok, that is a somewhat cryptic title, but this article will explain all and will give you some ideas on refinancing assets in your business.

Your warehouse – what do you see when you look at it? A large building which contains perhaps:

  • tailor-made racking or a similar storage framework to suit what is stored there
  • forklift trucks
  • palletisers
  • large packaging machinery
  • computerised stock tracking technology
  • automated picking system
  • conveyor belt system
  • delivery vehicles
  • and, last but of course not least, the business stock itself.

So, is the money box reference highlighting the large amounts of capital it’s cost to put all of that expensive system in place? No. It refers to the amount of working capital you have tied up in there and how you can unlock those funds to use again, for a new project or further expansion. Sounds too good to be true, doesn’t it? However, it can be done and it’s called refinancing assets.

Why refinance assets?

Imagine you have a big new project in mind that will really boost your company. Perhaps you need to fund a building expansion or get an expensive bespoke computer software system, but it’s going to take capital which you don’t have.

You could go to the bank for a loan, but that can take weeks to be approved – if it’s approved. You could ask for an overdraft, but it will have no measure of security, as the bank can call it in and revoke the facility at any time or increase charges as they like. You could try to find an investor, but that takes time and you’ll end up by either having to permanently part with a piece of the business or, at best, you’ll get someone who at least wants some input into how you conduct it.

None of these is a great option, but it’s not the end of the road for your project – consider refinancing assets instead. It’s a quick and straightforward method of raising capital on plant, machinery and a huge variety of other company-owned assets. Asset refinance is a tried and tested process, which can provide you with a valuable business tool.

How does refinancing work?

You give your prospective funder the details of the assets you’d like to refinance. These include (where appropriate):

  • the make and model of the item
  • its age
  • when you purchased it (with proof of purchase)
  • how many miles or running hours it’s had

The  funder will then assess these details and determine the value of the asset. They will decide how much they would be willing to advance, based on that value. They will also add an amount of interest depending on the length of the finance term. If all that is acceptable to you, then you will enter into a binding agreement with them and get your capital.

What are the advantages of refinancing assets over more traditional methods?

  • Asset refinance is a lot quicker and more straightforward than a traditional bank loan, so you won’t have to wait weeks for an answer.
  • The whole procedure can be much less intrusive, as the loan is based solely on the value of the asset. The lender’s security comes from the asset itself – if you default on payments, they can liquidate the asset to recoup their money.
  • The business can continue to use the asset as normal throughout the loan term.
  • Budgeting and maintaining cashflow is easy, as the agreement will be for a fixed length of time at a fixed rate each week, month or quarter, so you know exactly where you are at all times.
  • The cost of asset refinance payments is a profit/loss item, so will appear on-balance sheet as tax deductible expenses.
  • If you don’t deviate from the agreement and make your repayments on time, the funder can’t revoke the agreement or change the terms of it, unlike a bank overdraft.
  • At the end of the term, you’ve repaid the loan and the asset is all yours again.

What’s the catch with refinancing assets?

Actually, there isn’t one.

As with any method of borrowing money, providing you carefully calculate your ability to repay the loan and stick to the agreement you make with the funder, refinancing assets is a safe and easy tool to set up and use. It can help you to realise your ambitions for your business without risk or disruption.

More information

If you’d like to know more about how asset refinancing can help you reach your business goals, contact Anglo Scottish Asset Finance today. We have a dedicated team of experts in the field, who can discuss your needs with you and help you to grow your business.

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