What is Equipment Refinance?
If your business is in the manufacturing, agricultural or construction sectors, chances are that you have a lot of cash tied up in high-value ‘hard assets’ like machinery and vehicles. Refinancing is a way to release some of that equity by using the equipment to secure a loan. The overall amount of the loan will be based on your equipment’s value, as assessed by the lender.
Refinancing is also suitable for lower-value ‘soft assets’. These include things like IT infrastructure, catering equipment, air conditioning units and furniture.
How Does Equipment Refinance Work?
Here’s a quick overview:
Term and Repayment:
Equipment refinance is much like a standard secured loan, but there’s a crucial difference. Rather than using your equipment as collateral, you effectively sell it to the lender and lease it back from them for the term of the agreement. These are longer-term loans with manageable monthly payments, similar to an operating or finance lease, and ownership reverts to you when the term ends. The amount of the loan could be as high as 80% of the valuation of your equipment.
Lender Requirements:
Many lenders are willing to overlook less-than-ideal credit scores when it comes to refinancing. However, they still need to ensure that you will be able to make the repayments. You will need to show a range of documentation about your business, such as financial statements, cash flow and forecast.
What are the benefits of equipment refinance?
Equipment refinance is often approved fast; sometimes within hours. Lenders are more likely to be flexible about assessing eligibility and you can go on using the equipment as normal. You may also be able to refinance items that aren’t yet fully paid off. In this case, the valuation will be based on the percentage that belongs to you outright.
All this makes refinancing an appealing option for businesses that want or need to release cash quickly. You’re free to use the funds for any business purpose, whether that’s plugging a gap in cash flow or investing in a new opportunity, premises or infrastructure.
Are there any risks?
Refinancing may be quick, simple and relatively low-cost, but it’s not without risk. If you fail to keep up repayments, the lender can repossess your equipment. This may mean your business loses crucial infrastructure and can no longer operate.
Your equipment will belong to the lender for the duration of the term. This means you won’t be able to sell or trade it during this period or use it as collateral for any further loans. You’ll have to keep the asset maintained and in good order, even if you decide to stop using it. Some lenders may also impose a penalty if you decide to pay off the full amount early.
Let’s Discuss Your Equipment Refinance Options
Looking to release capital from existing business assets? We’re here to help.
Submit your enquiry using the form below or contact our team directly to explore structured equipment refinance solutions.
At Wenham Specialist Finance, we provide expert guidance to help you unlock working capital while keeping your equipment in use.