Should I Refinance My Assets to Raise Finance?
In the realm of business finance, there are various methods to acquire funds for your company’s growth, innovation, or simply to improve cash flow.
Refinancing assets, often an overlooked option, can be a strategic financial decision.
It involves revising your existing asset finance agreement to free up capital tied to your assets, providing your business with the cash injection it needs.
In this post, we’ll delve into the specifics of asset refinancing, the benefits it offers, and when it could be the right choice for your business.
What does it mean to refinance an asset?
Asset refinancing involves the use of a company’s owned assets – from machinery to vehicles – as security for a loan.
Essentially, you borrow against the value of assets you already own, and these assets are then used as security by the lender.
This form of finance can provide immediate access to cash, which can be used for any business purpose, such as to boost working capital, invest in growth, or fund other assets.
Can you refinance an asset?
Yes, businesses can refinance an asset as long as they own the asset outright, or if the outstanding finance on the asset is less than its current market value.
It’s important to note that the type of assets that can be refinanced may vary depending on the lender.
Some might specialise in refinancing heavy machinery or vehicles, while others may focus on technology or equipment.
What is the difference between finance and refinance?
Finance, or asset finance, involves taking a loan to purchase or lease assets that the business needs.
It allows the business to spread the cost of acquiring the asset over time, instead of having to pay the full amount upfront.
Refinance, on the other hand, involves revising the terms of an existing finance agreement or taking out a new loan secured against assets the business already owns.
Refinancing can be done to reduce interest rates, alter the loan term, or to release equity from the asset to raise funds.
What are the advantages of refinancing?
- Immediate Access to Cash: Refinancing can provide quick access to cash which can be used for various business needs.
- Keeps Assets in Use: Refinancing allows the business to continue using the asset while benefiting from the loan.
- Flexible Repayment Terms: Refinancing agreements often come with flexible repayment terms, making it a manageable form of borrowing for many businesses.
- Potentially Lower Interest Rates: If market conditions have improved or if your business’s credit rating has improved since the original loan, refinancing could secure a lower interest rate.
Asset refinancing can be a beneficial financial solution for businesses looking to raise finance. Whether it’s to release tied-up capital, secure better interest rates, or manage cash flow more effectively, it’s a viable and flexible option worth considering.
However, as with any financial decision, it’s crucial to consider the implications and potential costs carefully. It might be advantageous to seek professional advice before proceeding.
At The Funding Store, our team is always ready to provide a tailored service to provide you with the right information that helps you make the best financial decisions for your business.