Asset Refinance is how you can use existing assets to increase additional capital for a range of purposes. The assets may not be under or subject to a current financing agreement.
By releasing capital tied up in fixed- assets can help boost the cash flow and stability of the business. Funds can reduce existing liabilities or to restructure existing agreements and release the equity.
Typically, the provisions of Asset refinance agreements is in the finance lease or lease/hire purchase agreement.
What is an Asset Refinance?
More so, Asset Refinance allows a business to free- up working capital by refinancing an asset that they already own. Consequently, the assets refinancing is for vehicles, equipment, or machinery, wherein their possessions were also previously under credit. Hence, the route became so popular as an alternative to traditional types of credit that only offers to finance on brand new machinery, equipment, or vehicles.
Scenarios where Asset Refinance happens
Purchase of other equipment
Business owners raise funds by offering existing assets as additional security to obtain asset financing for new machinery.
Business owners plan to raise money to expand without any outside investment.
Buying-out or improving a business
Raising capital by refinancing the assets to purchase another company. Further, it can also be aid the restructure your existing business.
Reduce existing monthly accountabilities
To spread the remaining balance of an existing finance agreement over a longer term to decrease the number of monthly payments.
Working Capital Replenishment
To restructure an existing credit.
How does Asset Refinance work?
Asset Refinance is a secured- business- finance– a solution that is also a part of the range of products on asset financing.
Subsequently, a convenient means of lending cash by using high-valued business assets as equity. Accordingly, the lenders will ask the specific asset of how the company has been using the equity. Also, the lender will even know the worth of the asset. Often, the lender will ask a professional to conduct a valuation of the asset.
By the time the lender will release the money you are borrowing, the ownership of the asset is temporarily under the property of the lender. However, you still have the freedom to use the asset for your business operations.
After all, by the time you achieve the full payment, the ownership will be given back to you. However, if you are unable to repay the financing agreement and because Asset Refinance is a secured credit, the lender can take and own the asset.
What are the benefits of asset refinancing?
- It is quick and easy. Asset refinancing can immediately inject cash and maximize the optimal capacity of your cash flow. It can stabilize the cash flow movement and giving much buffer in the budget plan.
- You do not need to buy a new asset to leverage as collateral. You can immediately leverage your existing assets. In Asset refinancing, the business owner can always have the options to choose what particular assets to make as collateral depending on the specific business operation requirement of the enterprise
- When you need immediate business capital, Asset can be the best to mobilize. It provides a way of a carefully inject funds at precisely the right time to meet particular set business objectives.
- It provides security from a lender’s perspective. Asset refinance offers additional protection against the value of the loan and make the prospect lender more likely to approve your credit application.
Disadvantages of asset refinance
- The borrower will pay back more than the original price of the asset.
- The credit is set in in a fixed term which tends to be rigid to pay, especially when the economy is slowing its performance.
- It has to fix Interest rates.
- Typically, it requires Personal guarantees from the businesses owners or directors to secure the asset refinance.
Types of assets for asset finance