6 min read
Many businesses build up significant equity in machinery, vehicles or land over the years without realising it can be put back to work. Refinancing turns that equity into usable capital.
What it is
Refinance, sometimes called capital release or sale and leaseback, involves a finance company agreeing to purchase an asset the business already owns outright, or owns with little outstanding finance, and then leasing or hiring it back. The business continues using the asset exactly as before, but receives a cash sum based on its assessed value, repayable through regular payments.
It can apply to individual items of plant and machinery, to a fleet, or in some cases to property and land, and is often used alongside a wider review of a business's finance arrangements.
Who it suits
- Businesses with unencumbered or lightly financed assets wanting to fund growth or investment elsewhere
- Farms needing working capital to bridge seasonal cash flow gaps
- Companies consolidating several older finance agreements into one facility
- Businesses facing an unexpected cost, such as a repair or a tax bill, who would rather release equity than take on a separate loan
How it works
The finance company values the asset, taking condition, age and market demand into account, then agrees a capital sum to release, generally a proportion of that value. The asset is then financed back to the business under a hire purchase or lease arrangement over an agreed term.
- Independent valuation or assessment of the asset's current worth
- Capital sum released, usually a percentage of assessed value
- Repayments made over an agreed term, structured to suit cash flow
- The business retains uninterrupted use of the asset throughout
Typical terms
| Term | Typical range |
|---|---|
| Term length | 12 to 60 months, depending on the asset and its remaining useful life |
| Deposit | Not applicable; a capital sum is released to the business |
| Payment frequency | Monthly, quarterly or seasonal |
| End of agreement | Asset finance concludes as with a standard HP or lease, depending on structure chosen |
| Security | The refinanced asset, and any other security required by the lender |
Pros and trade-offs
Where it works well
- Releases capital without disposing of the asset
- Can be quicker to arrange than some other forms of borrowing
- Repayments can be structured around business cash flow
- Useful tool for consolidating existing finance
Trade-offs to weigh
- The asset is now subject to finance where previously it was owned outright
- Amount released depends on valuation, which may be lower than book value
- Not usually suitable for assets that are old or have limited remaining working life
Worked example
Worked example: refinancing a combine harvester
- Assessed value
- £120,000
- Capital released
- £85,000 (approximately 70% of value)
- Term
- 48 months
- Indicative monthly repayment
- Approximately £2,050
- Asset use
- Continues uninterrupted throughout the harvest and beyond
These figures are illustrative only, based on an assumed valuation and rate, and are not a quotation.
If you have equipment or property that could support a capital release, our team can arrange a valuation and talk through the options available.
Next step
Talk through the numbers with us
Send us the details of the asset and we will come back with an indicative figure and a properly structured option from the funder panel. No obligation, and no pressure to proceed.