It’s not uncommon for a business to experience cashflow issues at times, for both good and bad reasons.
For example, your business may require a cashflow injection in order to grow, or it may be affected by a bad debt.
Whether you’re wanting to free up some cash by releasing the equity you’ve built up in an asset or you want to consolidate your business debt, refinancing could be the right option for your business.
By refinancing and consolidating these debts, you could bring numerous debts under one umbrella, meaning you can replace expensive debt for a more affordable repayment to give you the chance to put more into the working capital of your business.
What are the benefits of refinancing?
The most obvious benefit is the fact that you can save money by moving onto a lower interest facility and therefore make smaller monthly repayments.
By bringing your overall rate of interest down, you will be able to pay off your debts quicker in order to get back on track, or you could spread the loan across a longer period of time to reduce the monthly repayments.
If you’re a business that has a number of debts, it can become complex to manage them all efficiently.
By rolling them all into one, you will only have one set of payments to make and have one point of contact with one lender, rather than a number of contacts, payment dates and amounts on different days, which will allow you to continue running your business without worrying about when your next debt payment is due.
Refinancing could also mean that your cash flow position will improve, as you will have more working capital available.
If this was a struggle beforehand, the threat of defaulting on the debt could be a serious problem for your business – whether that is getting a CCJ or the threat of insolvency. By refinancing, this potential problem could be less of a problem.
What if I have an asset that I want to refinance instead of a debt?
With refinancing, the value of the assets that you already own is used as security by the funder.
There’s no limit to what these assets can be, and it depends on the loan size and funder, so it can range from premises to machinery and stock – as long as you own it, you can use it as security.
The funder will then buy your owned asset from you for a pre-agreed sum that is based on its current value.
This will give you the cash sum injection that you need, and you will then buy the asset back from the funder on a new finance arrangement over a certain period of time.
Whilst all of this is being arranged, you can continue to use the asset that you are refinancing as usual and, once you’ve finished paying the finance off, you will own it once again.
It should also be noted that, as your asset is being used as security for the money, if you fail to keep up your repayments, you could end up losing the asset.
Asset refinancing can be a simple and relatively straightforward way of unlocking tied up cash for your business, especially if your business is short on cash but has a large number of assets to use as collateral.
Is refinancing a popular choice?
Whilst the traditional finance routes only offer funding for new assets, refinancing is popular as it allows you to free up working capital that is otherwise tied up on assets that you already own.
With refinancing being relatively efficient, it can also be a good way of raising cash if you are in a position where you need a quick injection of cash into the business – be that for working capital or to purchase a new asset.
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