What is asset refinancing? A guide for UK businesses

Asset refinancing is a way of releasing cash from an asset your business already owns, such as machinery, vehicles, equipment or commercial property, by refinancing it with a lender instead of taking out a new loan. The lender pays off any finance still owed on the asset, hands you the difference as a lump sum, and you keep using the asset as normal while you repay the new agreement. It's a useful option if your business is asset rich but needs cash for working capital, growth or a specific short term need, without giving up the equipment or vehicles you rely on day to day. Capitalise helps you compare asset refinancing offers from our panel of 130+ UK lenders, so you can see what your assets could release before you commit.

How does asset refinancing work?

Asset refinancing works by a lender valuing an asset you already own, then advancing you a lump sum based on the equity you hold in it. If the asset still has finance against it, the new lender settles the outstanding balance directly with your current provider, and you receive the remaining amount in cash. If the asset is fully owned with no finance against it, you receive a lump sum based on its value instead. You don't need to own the asset outright to refinance it. Lenders assess how much equity you have, meaning the difference between what the asset is worth and what, if anything, is still owed on it, and lend against that share.

Once the new agreement is in place, you continue using the asset exactly as before. Ownership sits with the finance provider for the length of the agreement, structured as a finance lease or hire purchase, and usually passes back to your business once you've made all the repayments.

Is asset refinancing the same as sale and leaseback?

Asset refinancing and sale and leaseback describe the same arrangement, just from two different angles. Sale and leaseback is the more technical name for what happens, you sell the asset to a lender for a lump sum, then lease it straight back so you can keep using it, while asset refinancing is the everyday term for using that structure to release cash from something you already own. Whichever term you hear, the outcome is the same. You get a cash lump sum now, and repay it over an agreed term while continuing to use the asset day to day.

How is asset refinancing different from asset finance?

Asset refinancing and asset finance both use business assets as security, but each is built for a different situation. The table below shows how they compare.

If you're looking to acquire new equipment or vehicles rather than release cash from something you already have, we can also help you compare asset finance.

What can asset refinancing be used for?

Asset refinancing releases cash you can use for pretty much any business purpose, since the lender isn't restricted to how you spend it once it lands in your account. Common reasons businesses refinance an asset include:

• Boosting working capital during a quiet period or ahead of a busy one

• Funding growth, such as hiring, stock or a new site, without a fresh unsecured loan

• Covering a one off cost, such as a tax bill or an unexpected repair

• Consolidating other borrowing into a single, more manageable repayment

• Bridging a cash flow gap while you wait on slow paying customers

• Raising a deposit or contribution towards buying another asset

What assets qualify for asset refinancing?

Most assets your business owns outright, or has significant equity in, can be refinanced, provided a lender can put a clear resale value on them. This typically includes:

• Commercial vehicles, from vans and trucks to specialist fleet vehicles

• Plant and machinery used in manufacturing, construction or production

• Business critical equipment, such as catering, medical or agricultural machinery

• Commercial property, including offices, warehouses and industrial units

Newer assets in good condition, with a longer remaining useful life, generally support a higher release and a longer repayment term than older or more specialist equipment, since the lender is relying on the asset holding its value for the length of the agreement.

What are the benefits of asset refinancing?

Releasing cash from assets you already own can suit businesses that don't want to take on an unsecured loan or give up equity to raise funds. Here's the key benefits:

• As the asset already exists and is usually already known to a lender, asset refinancing tends to complete in days rather than the weeks a larger, multi asset facility can take.

• You carry on operating the vehicle, machine or equipment exactly as before, just under a new finance agreement.

• Because the lender's security is the asset itself, businesses with a shorter trading history or a less than perfect credit score can still be considered.

• You don't need to own an asset outright, since the new lender can settle what's left on your current agreement as part of the deal.

What are the risks of asset refinancing?

As with any secured finance, there are trade offs to weigh up before refinancing an asset:

• If you fall behind on repayments, the lender can repossess the asset used as security.

• Maintenance, repairs and insurance remain your responsibility throughout the agreement, the same as they would with a standard asset finance agreement.

• If your current agreement is close to being paid off, the interest and fees on a new facility may outweigh the cash you release.

• Older or highly specialist equipment can be harder to value, which may limit how much you can release or which lenders will consider it.

How much can you release by refinancing an asset?

How much you can release depends on the asset's current value, its condition and age, and how much equity you hold in it once any existing finance is settled. There's no single fixed percentage that applies across every lender or asset type, so it's worth getting a specific valuation rather than assuming a figure in advance. As an illustrative example only, say your business owns a piece of machinery worth £50,000 outright, with no finance against it. A lender might offer to refinance it for around 70% of its value, releasing roughly £35,000 in cash, which you'd then repay over an agreed term while continuing to use the machinery as normal. Your own figure will depend entirely on the asset a lender is assessing and the offer they put together for your business.

How much does asset refinancing cost?

Asset refinancing is usually priced as a fixed interest rate for the whole term, agreed upfront and quoted as an APR, rather than a rate that moves up or down during the agreement.

Our asset finance calculator lets you model amounts, terms and rates to see what a facility might cost before you apply.

Am I eligible for asset refinancing?

Eligibility for asset refinancing centres on the asset itself as much as your business's financial history. Lenders on the Capitalise panel typically look at:

• The asset's current value, condition and remaining useful life

• How much equity you hold in it, after any existing finance is taken into account

• Your business's trading history, though this carries less weight than with an unsecured loan

• Your business and personal credit history, alongside the asset itself as security

• That your business is UK registered and trading

Because the asset provides the lender's security, businesses that might not qualify for an unsecured loan, including those with a shorter trading history or a lower credit score, can still be considered for asset refinancing.

What documents do you need to apply?

Having these ready speeds up an asset refinancing application:

• Details of the asset, including its make, model, age and any existing finance agreement

• 6 months of business bank statements

• Your last 1 to 2 years of filed accounts, or management accounts if you're newer to trading

• Proof of ID for each business director, such as a passport or driving licence

• Proof of address dated within the last 3 months

What should you check before refinancing an asset?

A few practical checks can save you time, or an unwelcome surprise, before you commit to refinancing an asset.

• Check your existing agreement for early settlement charges. If the asset is still under finance, paying it off early sometimes carries a fee, which comes off the amount you actually receive.

• Confirm the asset is free to refinance. Some finance agreements restrict refinancing or require the current lender's consent before you switch, so it's worth checking your contract first.

• Ask your accountant about the tax and accounting impact. Refinancing an asset you already own can affect how it's treated on your balance sheet and how capital allowances apply, so it's worth a quick conversation with your accountant before you proceed.

• Weigh the release against the ongoing cost. A larger lump sum is only worth it if the repayments comfortably fit your cash flow for the length of the new agreement.

Release cash from your assets with Capitalise

If your business owns vehicles, machinery, equipment or property outright, or has real equity built up in them, asset refinancing could release working capital without you having to give up using them. You can compare asset refinancing offers from our panel of UK lenders, and get support from a dedicated funding specialist from application through to funding. Apply today to get started.