Sometimes, a business has lots of assets. What they lack is working capital. Asset refinancing is a way for a business to use its pre-existing assets to free up some funds. This is an especially good option for any business that has struggled to secure a typical loan due to the strict criteria enforced by banks.
Of course, to access asset refinancing, certain criteria must also be met. For example, in most cases, the business must own the asset in question outright. An asset that is subject to another asset finance agreement can’t generally be used in this kind.
The way asset refinancing works is that the business transfers ownership of an asset to a finance provider at an agreed rate. The business then buys back that asset through regular payments. When a business needs funds fast, this is one way to release the equity contained in their assets.
During the application process, lenders will ask for information about the asset to determine its value. Usually, a surveyor is asked to objectively evaluate the asset. This will dictate how much the business has to pay the finance provider to regain ownership of its asset.
This value also determines how much money the business receives at the point of refinancing its asset. The asset being eventually transferred back to the business depends on monthly payments being met. If a business is unable to make payments, it will lose ownership of its asset permanently.
When assets are refinanced, the same terms as a secured loan apply, and the loan is secured against the asset itself. This often makes it easier for businesses to obtain funds through asset refinancing instead of applying for a traditional business loan at the bank.