How asset refinancing can free up cash for growth

Managing cash flow is one of the biggest challenges for small business owners, especially when valuable assets like equipment or vehicles are tied up rather than releasing the working capital needed for growth.

Asset refinancing, which is essentially borrowing against the value of assets you already own, offers a potential way to free up cash without having to sell the equipment that's so integral to your operations. Here's how it works and why it might be the financial solution your business needs.

What is asset refinancing?

Asset refinancing involves using your existing business assets as security to access additional funding. Instead of selling valuable equipment or machinery to raise capital, you can borrow against their current market value while continuing to use them in your day-to-day operations.

As a method to raise finance, it can be helpful for businesses that have invested heavily in equipment and vehicles over the years. Rather than letting these assets sit as dormant capital on your balance sheet, refinancing allows you to put their value to work for your business growth.

The cash flow challenge

Many successful businesses find themselves in a position where they own valuable assets but lack the liquid cash needed for immediate opportunities. You might need to:

• Take advantage of bulk purchasing discounts from suppliers

• Cover unexpected expenses or late invoice payments

• Invest in marketing campaigns during peak seasons

• Bridge gaps when customer payments are delayed

• Fund expansion into new markets or locations

In some scenarios, traditional bank loans can be slow and require extensive paperwork, while selling assets means losing the tools you need to operate at your best. Asset refinancing can provide a middle ground that addresses both challenges.

How asset refinancing works

The process typically involves having your existing assets professionally valued, then borrowing a percentage of their current worth. Depending on the asset type and its condition, you might be able to access between 60% and 80% of the asset's value.

For example, if you own delivery vans worth £50,000, you might be able to refinance them to access £35,000 to £40,000 in working capital. The vehicles remain in your possession and continue generating revenue for your business, while you gain the cash flow flexibility to pursue new opportunities.

Benefits beyond immediate cash

Asset refinancing offers several advantages over other funding options, including:

Competitive rates

Because the loan is secured against your assets, lenders typically offer more competitive interest rates than unsecured business loans or credit cards.

Retain ownership

Unlike selling assets outright, you keep full ownership and use of your equipment while accessing its capital value.

Tax efficiency

In many cases, the interest on asset refinancing can be offset against business profits, potentially reducing your overall tax liability.

Flexible terms

Most asset refinancing arrangements offer flexible repayment terms that can be structured around your business's cash flow patterns.

Considerations when refinancing assets

While asset refinancing offers clear benefits, there are important considerations to keep in mind. These include:

Risk to your assets

Your equipment serves as security, so you could lose these essential business tools if you can't make repayments.

Asset depreciation

Most assets lose value over time, meaning you'll likely borrow less than their original purchase price.

Additional debt burden

Taking on additional debt can create another monthly payment obligation that your cash flow needs to support consistently.

Limited borrowing power

You typically can only access 60% to 80% of your asset's current value, not the full amount.

Restrictions on use

Some agreements may limit how you can modify or relocate your financed assets. For example, you might be required to keep vehicles registered in the UK or ensure machinery stays at a specified site for the duration of the finance term.

Funding Circle's asset finance solutions

While asset refinancing can be a valuable solution, it's not available to every business or suitable for all situations. Funding new equipment through asset finance can still help improve your cash flow by preserving working capital.

We understand that every business has unique financing needs. Our asset finance service connects you with a panel of trusted partners who can fund a wide range of business assets and offer deals tailored to your specific situation.

Whether you're looking to fund new vehicles, machinery or equipment, our experienced account managers work with you to navigate the available options and find a deal that works for your business. We can arrange funding for almost any business asset, from cars and vans to manufacturing equipment and agricultural machinery.

Is asset refinancing a good idea for your business?

Asset refinancing works well for businesses that have invested in quality equipment over time and now need working capital to capitalise on growth opportunities. It's especially valuable if you need funds quickly but don't want to disrupt your operations by selling essential assets.

Just make sure you have assets with strong residual value and a clear plan for how the additional working capital will benefit your business.

The right asset

Your existing assets could be potential sources of working capital that strengthen your financial flexibility. Asset refinancing lets you tap into their worth while keeping the equipment and vehicles that your business depends on.

While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.