The long-term value of asset finance
Knowing when to invest and that you are making a sound decision on capital expenditure for your business is one of the biggest challenges for any owner. It’s often the case that the leap of faith required can pay dividends in terms of growing capacity, automating systems or improving productivity and the business never looks back or regrets the investment.
Asset finance makes it easier for a business to purchase, utilise and gain from ‘big ticket’ items which includes company vehicles, plant equipment, machinery or buildings. Spreading the cost over the long-term, companies make smaller, regular payments over a fixed term with interest and are able to use the equipment or property in the meantime.
Depending on the agreement, at the end of the term the asset will belong to the business and at this point may have a cash value which can be used as collateral to access further finance. In this scenario, the business can transfer the asset as collateral to a lender who will provide a loan based on its value. Asset refinance should not be confused with refinancing or debt consolidation which are different types of funding.
Use asset refinance to release cash in your business
Asset refinance is a useful way for a company to release equity which would otherwise be locked in if the equipment is still required for the business to operate. For example, a company may have invested in a £100,000 machine over four years after which a lender could value and be willing to provide £40,000 to use elsewhere in the business.
Rather than simply be a line on a balance sheet, asset refinance is an effective way to release the value of a high-cost item and use the funds to grow or expand in new ways. It can also help to create a cash buffer and breathing space for a business during tough trading conditions or economic challenges.
In many instances, a company may be unaware of the value of the assets which are dormant or part of the everyday fabric of their operations. Often they are pleasantly surprised to discover they are sitting on assets with value and no existing finance that can release a cash injection into their business.
With a wide range of lenders, many are willing to value specialist equipment used in a variety of sectors such as agriculture, engineering, manufacturing and processing. In some cases, asset finance can also be used to unlock funds against intellectual property such as software or IT, while still retaining control of the system. A qualified surveyor may need to inspect and value the asset prior to funds being released.
When a cash advance is made, a business is temporarily transferring ownership of the asset to the lender, but is able to continue to use the asset without interruption. Providing the business makes the fixed, regular repayments of the agreement, once the debt is fully repaid, ownership of the asset returns to the business.
Why use a broker to organise asset refinance?
Understanding and finding the best type of asset refinance for your sector and individual circumstances can be time-consuming and tricky to navigate. Working with a commercial finance broker can help to ensure that you optimise your chances of success by finding the right lender for your business’ situation.
A business finance broker will know what is required by a lender and the way that an application should be presented, in addition to often having a direct contact to discuss details on an individual basis. Working as a go-between the lender and business, they can ensure that each party provides the required information in a timely and effective manner for a successful outcome.
It is important to remember that asset refinance is a finance agreement and a business must make regular repayments until the loan is repaid. However, this is a committed facility and, unlike an overdraft facility, cannot be recalled or terminated at any point. It can provide huge comfort for a company to know that essential equipment is secure and that, whatever else happens in business, so long as repayments are made, they can rely and continue to use the asset to operate.
Using the right type of business finance to equip and grow your operations is a safe and sensible way to ensure you are in the best position, particularly in times of economic uncertainty. By using asset finance or asset refinance you can often protect your overdraft, business loan or cash reserve to create a financial buffer and ‘recession-proof’ your company.
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