Asset refinance

Asset refinance raises cash against equipment, vehicles or machinery your business already owns, and you keep using them throughout. A funder buys the asset and sells it back to you on hire purchase, or lends with the asset as security. Equipment still on finance can be refinanced too: the new funder settles the old agreement and advances part of the value left in the asset.

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How asset refinance works

A business that paid cash for its equipment, or has nearly paid off the finance on it, has money tied up in machines. Refinance turns part of that value back into cash. The equipment stays on your premises and keeps working. What changes is that a funder now has a claim on it, and the business has monthly payments to make.

There are two structures. In a sale and hire purchase back, the funder buys the equipment from your business for an agreed sum, pays you, and then sells it back to you on hire purchase. When the last payment is made the equipment is yours again. In a secured loan, the business keeps ownership and the funder takes a charge over the equipment as security. A company’s charge is registered at Companies House. Either way, if the payments stop, the funder can take the equipment and sell it.

How much you can raise depends on the funder’s valuation. It values the equipment at what it could recover by selling it, which can be well below what you paid or what it would cost to replace. A three-year-old excavator or tractor sells readily at auction. A bespoke machine bolted into a factory floor does not. The funder then advances a share of its valuation, set by its own lending policy.

Work being done in a small workshop

What can be refinanced

Funders lend against equipment they can identify, remove and sell. That covers most hard assets with a working second-hand market, from construction plant and agricultural machinery to machine tools, printing presses, commercial vehicles and catering equipment.

Software, fit-out, installation and anything fixed into a building carry little value to a funder once removed, so they support little or no refinance. A funder also wants to see that the business owns the equipment outright, or knows exactly what is owed on it.

  • Construction and agricultural plant
  • Heavy goods vehicles, vans and trailers
  • Machine tools, presses and production lines with a resale market
  • Equipment still on finance, where there is value above the settlement figure

What refinance releases

Illustrative example

A company owns a CNC machining centre with an assumed valuation of £80,000. There is £15,000 left to pay on its original hire purchase. A funder offers an assumed advance of £50,000 over 36 months at an assumed interest rate of 10% a year.

Funder’s valuation (assumed)
£80,000.00
Advance offered (assumed)
£50,000.00
Paid to the old funder to settle the hire purchase
£15,000.00
Monthly payment, 36 months at an assumed 10% a year
£1,613.36
Total of the 36 payments
£58,080.94
Interest over the term
£8,080.94
Cash released to the company
£35,000.00

The company receives £35,000 and replaces a nearly finished agreement with a new one at £1,613.36 a month for three years. The cash costs £8,080.94 in interest, before any fees.

Refinancing equipment already on finance

If there is still finance on the equipment, ask the current funder for a settlement figure in writing, valid to a date. The new funder pays that figure direct to the old one, takes over as owner or chargeholder, and pays the rest to your business. The cash you receive is the advance less the settlement figure, so equipment with a large balance outstanding releases little.

Check the old agreement for early settlement terms. Some charge most of the remaining interest, which eats into the cash released. Compare the cost of the new agreement with the cost of leaving the old one to run, in pounds, over the same period.

Tax and VAT when you refinance

Selling equipment to a funder is a disposal for capital allowances. If the company has already claimed full expensing or the annual investment allowance on it, the sale price comes back into the tax computation as a balancing charge. After full expensing, the charge is the full disposal value. Sections 213 to 218 of the Capital Allowances Act 2001 then restrict the allowances on equipment sold and hired or leased back, and section 217 removes the annual investment allowance and first-year allowances on it. The result can be a tax bill in the year of the refinance. A secured loan, where the business keeps ownership, has no disposal.

If the funder buys the equipment, the sale is a supply by your business and VAT may be chargeable on it. Ask the funder and your accountant how the VAT on both legs is handled before the sale goes through, and have your accountant work out the corporation tax effect in pounds.

What to have ready

When refinance makes sense

Refinance suits a business with real value in its equipment and a specific use for the cash: funding a contract, buying stock in bulk, paying a tax bill, or bridging a seasonal gap. The payments are fixed, the term is set, and the security is equipment the business already has.

It is a poor fit for covering trading losses. The business takes on fixed monthly payments at the moment it can least afford them, and if trading does not recover, the equipment it needs to work is the security the funder will take. Look first at what is causing the gap. If customers pay slowly, invoice finance borrows against the invoices. A swinging balance may suit a revolving credit facility. A tax bill can be spread with a time to pay arrangement or a corporation tax loan.

The funding search through Swoop is for limited companies and LLPs, and for sole traders and partnerships borrowing more than £25,000.

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Questions people ask

What is asset refinance?

Asset refinance raises cash against equipment, vehicles or machinery your business already owns. A funder buys the equipment and sells it back on hire purchase, or lends with the equipment as security. The business keeps using it and repays the funder monthly over a fixed term.

Can I refinance equipment that is still on finance?

Yes, if the equipment is worth more than the amount left to pay. The new funder settles the old agreement direct with the old funder and pays the rest of the advance to your business. Get a written settlement figure first, and check the early settlement terms of the old agreement.

How much can I raise against my equipment?

The funder values the equipment at what it could recover by selling it and advances a share of that value, set by its own policy. The figure depends on the type, age and condition of the equipment and how easily it sells second-hand. Any finance still owed is deducted from the advance.

Does asset refinance affect my capital allowances?

A sale to the funder is a disposal. If the company has claimed full expensing or the annual investment allowance on the equipment, the sale price comes back as a balancing charge, and anti-avoidance rules restrict the allowances when it is hired back. A secured loan with no sale avoids the disposal. Ask your accountant to work out the effect before you sign.

Is asset refinance a good way to raise working capital?

It can be, when the business has value in its equipment and a defined use for the cash that will pay back. It is risky as a way to cover losses, because the equipment the business needs is the security. Invoice finance or a revolving credit facility can fit a working capital gap better when the cause is slow-paying customers or uneven sales.

Finance is subject to status and to the lender’s terms. A personal guarantee makes you liable for the company’s debt if it does not repay, and it can be enforced against your own assets, including your home. Nothing here is a personal recommendation.

Assets and property

Asset finance

Asset finance spreads the cost of equipment, vehicles and machinery over the years you use them, with the asset as the funder’s security.

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Hire purchase for business

Hire purchase spreads the cost of an asset over monthly payments, and the business owns it once the last one is made.

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Working capital finance

How the trading cycle ties up cash, and which short-term finance fits each gap.

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Refinancing business debt

Replacing existing business debt with a new loan, and clearing the old guarantees and charges when you do.

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Funding searches run on Swoop’s platform. Swoop Finance Limited is a credit broker and not a lender, and is authorised and regulated by the Financial Conduct Authority (FRN 936513). Buzz Accounting Ltd introduces businesses to Swoop and may receive a fee from Swoop when funding is arranged. Business funding is separate from the financial advice Equity & General Financial Services Limited gives through this website. Finance is subject to status, and a lender may ask a director for a personal guarantee.

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