Asset refinance explained: a guide for SMEs

Investing in equipment, vehicles or machinery might have been born out of necessity but those assets have added value to your business. And if you find yourself needing working capital when your finances are feeling a little squeezed, thereʼs a way to unlock the value in those assets to free up some funding.

Asset refinance lets you use the value of equipment and assets you already own, turning them into working capital without having to sell them or stop using them. Itʼs a way to put your existing investments to work twice over. If youʼre a business working in industries with any kind of big machinery, such as manufacturing, construction or agriculture, youʼre likely to have assets that will qualify. However, this type of finance isn’t confined to those sectors – logistics businesses have lorries and vans, some healthcare companies own medical equipment and even catering equipment can qualify.

In this guide, weʼll look at what asset refinance actually involves, when it might make sense for your business, and what you need to know before you apply.

Key points:

• Asset refinance lets you borrow against the value of things your business owns

• Your remain the owner of the asset and can keep using it while freeing up capital

• Funding Options by Tide can help when optimisation of working capital isnʼt enough, offering access to business finance up to £20 million

What is asset refinance?

Asset refinance lets you borrow money against assets you already own outright. Unlike a traditional business loan where lenders assess your creditworthiness and business performance, asset refinance is secured directly against the value of your vehicles, machinery or equipment. You continue using the assets exactly as before, but you get an injection of capital based on what theyʼre worth.

It’s different from asset finance, which is an umbrella term that covers different types of lending for businesses looking to buy or hire assets they don’t have. As the loan’s repaid in instalments, costs can be spread over months or years, so businesses can get the assets they need to grow without having to make a big payment upfront. Types of asset finance include hire purchase, finance lease, and operating lease, which differ depending on whether you’ll want to keep, upgrade or return the asset when the loan term is finished.

How does asset refinance work?

The process is fairly straightforward:

• You approach a lender with details of the assets you want to refinance

• The lender assesses their current market value, checking factors like age and condition

• If satisfied, theyʼll offer to loan a percentage of that valuation, usually between 60% and 85% 

For example, if you own machinery worth £20,000 thatʼs fully paid off, a lender might offer you £16,000 against that asset. Youʼd then repay that amount over an agreed term, typically anywhere from 1-5 years, with interest. Throughout this period, the asset remains yours and you keep using it in your business.

Most lenders can make decisions within a few days to a couple of weeks, which is faster than many other business funding options. They want to see proof of ownership, evidence the asset is in good working order, and confirmation you can afford the repayments.

The assets themselves serve as security for the loan, which means if you canʼt keep up with repayments, the lender has the right to take possession of them to recover their money.

When might you use asset refinance?

Businesses turn to asset refinance for many reasons, and the circumstances can vary wildly depending on your situation.

It can be useful if youʼre looking for working capital finance but donʼt want to take on unsecured debt, for example. Perhaps youʼre managing a seasonal cash flow gap, taking on a large order that requires upfront costs, or dealing with an unexpected expense that canʼt wait.

Some businesses use it to fund expansion. You might need to hire new staff, open another location, or invest in marketing. Others use it to smooth out ups and downs in cash flow, particularly in industries where youʼre paid in arrears but have ongoing costs to cover.

It can also make sense when youʼre refinancing existing assets that you might have used asset finance for originally. Once youʼve paid off that finance agreement, the asset is yours outright and you could potentially release some of that value if you need it.

The decision to apply for it can be down to timing. Asset refinance works when you need cash relatively quickly and have valuable equipment thatʼs not already secured against other borrowing.

What sort of assets can you refinance?

Most types of business equipment and machinery can be refinanced, provided they hold their value reasonably well and have a clear resale market.

• Machinery and equipment is probably the most common category. This includes manufacturing equipment, printing presses, construction machinery, agricultural equipment, and anything similarly heavy-duty. Lenders like these assets because they hold their value, and thereʼs usually a market for them if they need to be sold.

• Commercial vehicles are also widely accepted, particularly vans, lorries, and specialist vehicles used in your trade. Company cars can sometimes be refinanced too, though lenders may be more selective about these.

• IT equipment can be eligible if itʼs high-value hardware such as servers, networking equipment, or specialised computer systems. Standard office computers and laptops typically donʼt have enough value to make refinancing worthwhile.

• Other business assets might include things like catering equipment for restaurants, medical equipment for healthcare businesses, or specialist tools and equipment specific to your industry.

What typically doesnʼt qualify is anything that loses its value very quickly, items that are difficult to value or resell, or assets that are already secured against another loan. The asset also needs to be in good working order. Lenders wonʼt refinance equipment thatʼs fast approaching the end of its working life or would be difficult to sell if needed.

The asset valuation is key when using this type of finance. If you paid £30,000 for something for three years, itʼs very unlikely to be worth that now. Lenders base their offers on current market value, not the original price of the asset.

What sort of businesses use asset refinancing?

Asset refinance isnʼt limited to a particular type or size of business, but itʼs common in asset-heavy industries.

Manufacturing and production companies often have substantial machinery sitting on their books. Once these assets are paid off, they represent a readily accessible source of capital. A precision engineering firm might refinance computer controlled cutting machines, while a packaging company might use printing or production equipment.

Construction and trades businesses frequently use asset refinance on plant machinery, excavators, scaffolding, and specialist equipment. These businesses often have significant capital tied up in equipment that holds its value well.

Transport and logistics companies with fleets of vehicles, particularly HGVs and specialist transport equipment, are natural candidates for asset refinance. The vehicles continue to be used to earn money while also providing security for borrowing.

Hospitality businesses sometimes refinance commercial kitchen equipment, particularly in established restaurants or hotels where the equipment is fully owned and has been well maintained.

Youʼll find asset refinance used by businesses at different stages too. Established companies that own equipment outright might use it to fund growth without giving away any stake in the business. Others that are experiencing rapid expansion might use it to release capital quickly when opportunities arise.

What matters more than your industry or size is whether you own suitable assets outright and want to access capital without selling them.

What are the benefits of asset refinance?

Asset refinance offers several advantages that can make it attractive in the right circumstances:

• Quick access to working capital: Once your assets are valued and approved, funding can arrive much faster than with traditional loans. 

• Retain ownership of your assets: You can keep using the equipment. Youʼre not selling assets or losing access to anything essential to your business while you wait for financing.

• Flexible repayment terms: Many lenders offer terms tailored to your cash flow patterns, and you can often choose repayment schedules that match your business cycle.

The cost of asset finance varies depending on the lender, the amount youʼre borrowing, and how they assess the risk. Interest rates typically range from around 6% to 15% APR and will vary depending on your circumstances and the strength of the assets backing the loan.

There are also other costs to be aware of. As well as interest, youʼll usually be charged arrangement or facility fees, which might be a flat fee or a percentage of the loan amount. Some lenders also charge valuation fees to assess your assets, while others build this into their overall pricing. Ask for a clear breakdown of all costs upfront so you can compare offers properly and understand the total amount youʼll repay over the loan term.

What are the risks of asset refinance?

As with any form of borrowing, asset refinance comes with considerations you need to weigh up carefully.

• Assets at risk if repayments arenʼt met: If your business experiences difficulties and you canʼt keep up with repayments, the lender can repossess the assets youʼve refinanced. That could mean losing equipment thatʼs essential to your operations, which could be hard to recover from.

• Interest costs over time: Youʼll pay interest on the amount borrowed, and over several years this adds up. Calculate the total cost of borrowing, not just the monthly payment, to understand what youʼre really committing to.

• Debt obligations: Youʼre taking on a financial commitment that needs to be serviced regardless of how your business performs. If trading becomes difficult, those monthly payments donʼt pause to give you breathing room.

Itʼs vital youʼre confident you can comfortably afford the repayments even if business conditions change. Lenders assess affordability, but you know your business better than anyone. If the numbers feel tight, they probably are.

Alternatives to asset refinance

Asset refinance isnʼt your only option when you need business funding. Here are some others that might suit your circumstances better:

• Invoice finance and invoice factoring: Instead of waiting for invoices to be paid, you could access that money sooner by borrowing against those outstanding or selling them to a factoring company. This can provide regular cash flow that grows with your sales, though your customers will know youʼre using a factoring company if you take that route.

• Business loans: Traditional term loans arenʼt secured against specific assets, which means you donʼt risk losing essential equipment if things go wrong. They might take longer to arrange and could require a stronger credit history however.

• Merchant cash advance: For businesses with regular card transactions, a merchant cash advance provides upfront capital thatʼs repaid through a percentage of your daily card takings. Itʼs quick and flexible but can be expensive, particularly if sales are slower than expected.

The right choice depends on what you need the money for, how quickly you need it, what assets or income streams you have available, and how much the cost of borrowing matters to your business.

Find business finance with Funding Options by Tide

Whether youʼre looking for a standard business loan, a short-term business loan, or something a little more specialist, like auction finance for property developers, weʼre one of the leading names in business finance in the UK, having helped facilitate over £1 billion in finance to more than 20,000 customers.

Checking if youʼre eligible is free, only takes a few minutes, and while a full application would impact your personal or business credit score, checking eligibility wonʼt. Just submit your details via the link below to find out if you could be eligible to borrow up to £20 million.

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FAQs

How much can I borrow against my assets?

Most lenders offer between 60% and 85% of the current market value of your assets. The exact percentage depends on the type of asset, its condition, its age, and how easy it would be to resell. Assets that hold their value well typically qualify for higher loan-to-value ratios.

How long does the process take?

Asset refinance is generally quicker than unsecured lending. Once youʼve provided details of the assets and the lender has completed their valuation, you could have funding within a week or two. More complex applications involving multiple assets or higher values might take a bit longer.

Will I lose ownership of my assets?

No, you retain full ownership of your assets throughout the refinance period. You continue using them in your business exactly as before. The lender simply has a security interest in the assets until youʼve repaid the loan in full.

What happens if I canʼt make repayments?

Itʼs always better to speak to your lender if you canʼt make repayments as they typically try to work with you first to find a solution. Not making them aware of any issues means itʼs more likely they will take possession of the assets and sell them to recover what you owe. 

Can I refinance assets Iʼm still paying for?

Generally no. Most lenders require you to own the assets outright before theyʼll refinance them. If youʼre still making payments on an asset finance agreement or lease, youʼll need to settle that first or wait until itʼs paid off.

Is asset refinance right for startups?

Asset refinance is less common for very new businesses simply because startups typically havenʼt had time to accumulate significant assets they own outright. However, if your startup has purchased assets outright from the beginning, asset refinance could be an option depending on their value and your business circumstances.

Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

Itʼs important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicantsʼ circumstances and creditworthiness. Funding Options will receive a commission or finderʼs fee for effecting such finance introductions.