At times most businesses will have an urgent requirement for cash, whether it’s for a deposit on a new office or simply pressure from extended customer terms. This all has an impact on cash flow. Whatever the reason, why not utilise the assets of the business and use them to secure finance, allowing your business to fulfil its commitments? Flexible payment terms helping you to manage cash flow more effectively.
Asset refinance is simply a lending facility where a loan is advanced against valuable assets that your business owns. These assets can be anything from buildings to vehicles or equipment that is held on the company’s balance sheet. It’s an extremely straight forward facility allowing you to release cash from the asset. The amount you can borrow depends on the value of the assets involved. Financiers will also fund assets where there is an outstanding balance owed to another lender. This again is quite straight forward as the financier will establish the value of the asset and then lend against the equity that you hold to an agreed set percentage. However, the financier will repay the first lender, thus ensuring that they now have full control and title of the equipment until the final repayment has been made. There are a number of lenders who will consider almost anything that has a resale value. There are, however, a number of requirements and considerations when seeking approval for asset refinance. These are noted below:
Asset Value £10,000 = 100% equity of the asset on the company balance sheet
Financier agrees the value and advances a loan against the security of the asset e.g. 70% Loan to Value = Loan advance of £7,000. There will be an agreement in place between the business and the financier, whereby a monthly repayment will be made and on the final payment the title of the asset will return to the company, and the charge over the asset released. This will be applicable to any asset, whether it’s a fleet of vehicles or a property.
The business has a vehicle worth £10,000. They acquired the vehicle on a hire purchase agreement, and they still have £1,000 left to pay until the asset is owned by them. This means the business has £9,000 of equity in the vehicle and the hire purchase provider owns the remaining £1,000 of equity.
Providing the new financier agrees to the value of the asset, the business can refinance the company’s vehicle up to the value of approximately £7,000, as per the last example equalling 70% of the vehicles overall value. The new financier would then pay the hire purchase firm the remaining value of £1,000 in order to take the charge over the asset and lend the company £6,000 based on its agreed value.
The following is a brief guide to the acceptance criteria for finance, but is not a guarantee. All circumstances will be considered and an assessment will be made on an individual case by case basis.
From the above information, you should be able to establish if this is the best product for your business, but we would always encourage you to discuss all options with your accountant to ensure you make the most of your working capital.