By Nigel Garner
Capital is the lifeblood of every business. Without it, it can be incredibly challenging to fund your day to day operations.
Having money tied up in your current assets can stifle growth considerably. To avoid a progress stunt, it is a clever idea to optimise the cash flow that you have readily available to you by leveraging the money in your current investments: we refer to this process as asset refinance. Asset refinance has increasingly become a preferable alternative to the traditional routes of obtaining funds.
Tapping into the money you already have available tied up into your current business possessions opens up a goldmine of resource. Quite like when you remortgage your home, or in the family wrecking favourite: Monopoly. Example of stock that can be refinanced includes commercial property, vehicles, or machinery. Let’s look at how asset refinance would look in a real-life scenario: George’s logistics company has a small fleet and is looking to raise capital to invest in new vehicles. Instead of taking out new finance deals, he looks at his existing options.
One of George’s vans is worth £10,000. As he owns the vehicle outright, he would be entitled to 100% of the equity; It would be a straightforward refinance. If we looked at a slightly different situation, and George’s van is on an incomplete finance deal, he would still be able to utilise this asset; but for a slightly lower amount. Hypothetically basing this example on having already paid off £8,000 he would have the same value in potential equity. In this situation, George could consider refinancing his vehicle for 70% of the item’s overall value.
The refinancing lender would take ownership of the asset, pay the original hire-purchase firm the remainder of the original loan, and lend George capital based on its remaining value. If a lender is willing to accept assets as security, you can apply the same principles. If George owned a warehouse worth £500,000 with a remainder of £200,000 left to pay, he technically owns an asset with a value of £300,000. It would be possible to agree on a loan or finance agreement on that basis. By working smart, you can make your investments work hard for your business, improving your bottom line in the process. Equity is the golden key to refinancing; before looking at new ways to raise capital, make sure you consider all the available options within your assets.
MBM Capital offer flexible finance solutions to suit your business and would love to discuss your needs to show how we can help give your business a quick cash injection. Contact us by calling us on 0345 680 1895 or visit www.moorebizmgt.co.uk or email [email protected]
