Asset refinancing

What is asset refinancing?

Depending on the situation, refinancing may have a few different meanings. It might signify:

• Using an asset as security or a loan.
• Combining (or, more typically, in addition to) other sources of finance.
• Refinancing business debt (debt consolidation).

Refinance combined with other finance

The biggest benefit of refinancing is that you don’t have to own the assets outright since lenders will evaluate your equity against what you currently own. The amount of credit that may be offered under a refinance is limited by the value of the assets being refinanced. You couldn’t borrow £50,000 secured against an asset worth £30,000, but with enough equity in an item, you could still generate a sufficient amount of cash for your requirements.

That means you may raise finance against a piece of equipment you’ve obtained via hire purchase, even if you still owe money to the hire purchase firm.

Asset refinance example

Your brewery has a piece of machinery worth £100,000. You got it on a hire purchase agreement and only have £10,000 left to pay. That means you have £90,000 of equity in the item, or to put it another way, your company owns nine-tenths of the machinery, and the funder owns the remaining tenth.

If you have the right equipment, you may refinance your machinery up to the value of roughly £60,000 (70% of the item’s overall value). The refinancing funder would pay off the hire purchase funder for £10,000 and take over the charge on the asset while lending you £60,000 based on its value.