Asset refinancing is a way you can extract cash from assets your business owns. You can secure a loan with e.g. commercial property, equipment or vehicles. It’s common to use asset refinance in combination with other types of finance such as invoice finance.Refinance your assets
Asset refinancing is essentially allowing lenders to look at the equity (share) you currently have in an asset and based on that evaluation you will receive a loan. For example, if you purchased equipment on a hire purchase agreement and have some money left to pay (to the hire purchase provider), you can still raise finance against this (partially owned) asset. The new lender will usually pay off your original lender (in this case the hire purchase company) and give you a lump sum based on the equity you have in the asset.
One advantage of refinancing is that you don’t need to own the asset(s) outright, because lenders will base their offer on the equity you currently hold. Refinancing is always limited by the value of the asset(s) on offer — you couldn’t borrow £10,000 secured against an asset worth £5,000 — but with enough equity in an expensive item, you could still unlock a sufficient amount of cash for your requirements.
That means that if you’ve equipment through hire purchase, for example, you could raise finance against it even with money still to pay off to the hire purchase provider.
Let's take a quick example to show how asset refinance works in practice. Joe’s construction firm has a machine worth £10,000. He got it on a hire purchase agreement, and only has £1,000 left to pay. That means he has £9,000 of equity in the item — or to put it another way, Joe’s company owns nine-tenths of the machine, and the hire purchase provider owns the other ten percent.
In this situation, provided it’s the right kind of machine, Joe could refinance it up to the value of about £6,000 (so 70% of the item’s overall value) — the refinance lender would pay the hire purchase firm the remaining value of £1,000, take the charge over the asset, and lend Joe £6,000 based on its value.
In the above example, this arrangement would work in a similar way if Joe owned the asset outright, but in that scenario, he’d probably be able to raise more money against it. In the first example, Joe effectively owns an asset worth £9,000 because he has 90% equity of £10,000; in the second case, he owns 100% of it, so his equity is worth the full £10,000.
You can apply the same logic to any asset that a lender will accept as security — for example, if Joe owned a commercial property worth £500,000 and had £200,000 of a commercial mortgage left to pay off, he effectively owns an asset worth £300,000, and might be able to refinance and get a loan based on that value.