Asset refinancing can be used by a company to raise cash. Money is leant against the security of individual company assets. It is possible to raise cash in this way even if assets are already encumbered with a finance agreement.
- Could you use Asset Refinancing to raise company cash?
- How much can be borrowed via Asset Refinancing?
- Will Directors have to give Guarantees?
- Use Asset Refinancing to fund a Pre Pack
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How much can a Company borrow with Asset Refinancing?
The amount that can be borrowed through asset refinancing depends on the value of the company’s assets. The potential resale value of the goods in question is clearly pivotal to the valuation. However just as important is how readily the assets could be sold if they are repossessed. This is assessed by an independent valuer.
Generally speaking lenders in this market will offer cash of up to 70% of the value of the assets. However finance is normally only available if a company has identifiable tangible assets such as plant or machinery.
It may be possible to borrow extra money against assets which are already financed. However the outstanding debt will have to be paid back as part of the deal.
Will Directors have to give Personal Guarantees?
Lenders who are prepared to offer asset refinance deals generally have more appetite for risk than high street banks. This is why they are prepared to consider lending money in this way.
Security for the money lent is provided by the assets themselves. If the loan is not repaid the lender will have the right to repossess the goods. Having said that interest rates are likely to be far higher than a traditional bank loan.
It is also extremely likely that the company directors will have to personally guarantee an asset refinancing deal. In the event that the loan is not repaid the goods would be sold. However any shortfall would have to be settled by the directors themselves. This situation is to be expected and is no different to the requirements of standard lending.
Asset Refinancing to fund a Pre Pack
One of the problems which directors face when considering Pre Pack Liquidation is funding the purchase of the old company’s assets. Depending on their value this could amount to a considerable sum. The directors of the new business must find this cash. Asset Refinancing could be the solution.
Money can leant to the new company on the basis of the asset value of equipment which is to be purchased from the old business. This is then secured against the assets which will be transferred. The money lent is then used to pay the Liquidator for the assets.
It is important for the directors to understand that if the loan is not repaid as agreed the assets will be repossessed and sold.