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What is refinancing?
Refinancing is a type of asset finance that allows you to borrow sums of money which is secured against the value of existing assets on your business’ balance sheet. It allows you to release cash tied up in your capital assets to support your expansion goals or the obtaining of new business.
Your business can pay monthly instalments over a specific period of time so you can budget and forecast. Refinancing business assets does not affect your usage of them and trading can continue as normal which is why it can be useful for businesses with unencumbered capital assets. It is an option to generate cash without having to sell assets.
It is particularly ideal for manufacturers and distributors who often have to invest in materials, inventory or technology months before payments will be made. Not only can refinancing instantly enable you to borrow a large amount of cash, but once your assets grow you may be able to increase your funding line, subject to credit approval.
How will refinancing work for my business?
Refinancing is a great way of releasing cash from assets quickly to invest and take advantage of business deals whilst meeting your current workload.
If you are raising finance against a single or small number of assets, the amount released, the interest rates and repayment terms will depend on a variety of factors including the age, perceived remaining useful life and value of the asset(s). Financial information about your business may also be required.
For larger amounts, perhaps were a line of credit is required, you will need to produce historical financial information as well as forecasts which will show how the business will be able to service monthly payments.
Your initial funding line will be set up to accommodate the highest predicted level and it will be secured against an asset or assets. Your business can dip into this funding, whenever it is needed, to acquire new assets and make monthly repayments. Your line of funding may also be increased at a later date, subject to credit approvals and approval by your lender.
Refinancing is suitable for businesses which are looking to expand or which are suffering cash flow problems but where the refinancing of an asset can help to get them back on track. With a range of refinancing options available, get in touch with us to discuss the best solution for you based on your business’ needs.
Refinancing: another option
Using unencumbered assets to refinance can be an effective way to raise capital and boost cash flow. One method of achieving this is by a ‘sale and leaseback’ which allows your business to sell assets to the finance company and they will lease it back to you over an agreed term. At the end of this term your business may have the option to purchase it back.
Why should I consider refinancing for my business?
Refinancing is likely to work for your business for many reasons and we will work hard to find you a lender who will be able to offer your business:
- A flexible means of borrowing – Refinancing offers the option of raising cash against one or two assets or with larger amounts (perhaps where a fleet of vehicles is involved) a line of credit which can be used as a revolving facility. The maximum amount of cash your lender is willing to allow you at any one time will be agreed and secured against the value of your asset(s). You can borrow and repay cash from your credit fund up to its limit within the terms agreed by your lender.
- Instant capital to fund growth and change – Refinancing assets of your business is a fast way to release cash to fund growth and purchases; it can even be used as part of a financing package to fund mergers and acquisitions. Once approved, your line of credit will be set up straight away and you will be able to access the cash which has been released.
- A flexible solution – A variety of funding products are available, either on or off balance sheet, at fixed or variable rates. Interest rates, amounts available and repayment terms would be dependent on a number of factors including the value of the assets and their perceived remaining useful life as well as your business financial statements and projections.
- A cost effective solution – Refinancing is a cost effective means of generating cash and it provides you with the ability to spread repayments to maximise affordability.
- The freedom to continue trading as usual – Refinancing will not affect the use of your business’ assets, the ones you have refinanced and the ones you haven’t, and you can continue to use them in the same way as you did before.
Are there any risks associated with refinancing?
- Can’t afford repayments? Assets may be seized – Your lender takes as security the asset it is lending against. If you cannot afford to make repayments or are repeatedly not paying, then your lender is likely to seize the asset to repay the outstanding balanced owed to them.
- It can help some businesses that are struggling, but it is not a solution to insolvency – If you are struggling with cash but have a high value of assets on your balance sheet, refinancing can be an extremely useful tool to get back on track. However, if your underlying business is insolvent, struggling to pay debts and cannot see your situation improving, refinancing assets is unlikely to help. If you are facing this situation contact us as soon as possible to discuss alternative options to preserve your business.
- Look after your assets or they’ll lose value – You should not only look after your assets so you get years of use out of them but because the better condition they are in, the more they are likely to be worth.
So if you are looking to refinance your assets to release cash for growth or expansion purchases in a cost effective way, refinancing could be the right option for you. Call us for further information or to get your free, no obligation quote.
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WF Financial Solutions is an independent broker of invoice, asset and trade financing solutions with links to lenders of all sizes and specialties. WF Financial Solutions has helped many clients through a range of lenders and their varying services and we are proud to offer advisory and introductory services to finance providers that suit your needs.
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