If your company is struggling to pay its debts due to poor cash flow, there are measures you can take in order to prevent the business from descending into insolvency. One of the options you may have for improving your business’ cash flow is asset refinancing.
What Is Asset Refinancing?
Asset refinancing allows you to release equity and raise capital using your existing business assets. How does this work? Well, the amount of cash that you can raise from an asset will depend on the type of asset, its conditions and its age. The process, which is sometimes referred to as a ‘sale and leaseback agreement’, involves the lender assessing how much equity remains in the asset, and offering a percentage of this figure as a lump sum. If the asset is owned in full, then it is likely the lender will grant a higher percentage lump sum than if the asset is part owned.
What Are The Advantages Of Asset Financing?
Boost Cash Flow Quickly: Asset refinancing is a quick way of raising capital in order to pay off current liabilities
Alternative Solution To Traditional Financing: If your business is in financial distress, you may be unable to access traditional financing support such as commercial loans. Asset refinancing offers a viable alternative to help you raise cash.
Flexible Use Of The Asset: As long as you meet the lender’s terms and conditions, your business has unrestricted use of the asset and you will regain ownership of it at the end of the term.
The disadvantage of asset refinancing is that it is generally more expensive than raising capital via other means, such as using a business loan. This is due to interest rates and associated service charges. That being said, it’s important to emphasise that asset refinancing is usually a short term solution, rather than a long term fixture.
Is Asset Financing Suitable For My Company?
Asset refinancing is suitable for companies that are asset-rich but cash-poor. Refinancing involves using your business’ existing fixed assets which is why it’s essential that your business has fixed, unencumbered assets in order to consider this as an option for boosting cash flow.
There also needs to be a realistic prospect that refinancing the company will allow it to return to profitability. That’s why asset refinancing is not a viable option for businesses that are already insolvent i.e their liabilities outweigh their assets. If your business is insolvent, you will need to look at either a company rescue procedure or liquidating the company instead.
If you think that refinancing may be an option for your company then you should contact our team of insolvency professionals to seek guidance on whether or not this is a viable option for your business. We will be able to assess if asset refinancing is the best option for your company, and where it is not, advise on other options that are better suited to your individual requirements. Give us a call or drop us a message today for confidential advice from our experienced team of licensed insolvency practitioners.