How to raise funding for your company using business assets

Existing business assets can be used to raise funding and provide financial stability for your company at any stage. This type of financing boosts cash flow, eases budgeting, and provides some certainty when executing strategic plans. 

With many flexible funding options now widely available, it makes sense to leverage the value held within your balance sheet assets. So how can you raise the funding you need using the assets already in your business?

Asset refinancing

Refinancing one or more existing assets offers several important benefits. It releases the capital locked inside the asset – a cash lump sum that you can invest in growth or use to provide greater financial stability for your company day-to-day.

How does asset refinancing work?

You can refinance any asset of value on your balance sheet, but hard assets commonly used for refinancing purposes include plant and machinery, vehicles, and office equipment. The funder ‘buys’ the asset from you and then leases it back for a fixed term. This is called a sale and leaseback arrangement. 

As the monthly rental payments are fixed, it allows you to budget efficiently. Crucially, your rights to use the asset are uninterrupted so there’s no disruption to your operational capacity or productivity, and ownership transfers back to the company on completion of the agreement.

Invoice finance

Invoice finance is a form of asset-based funding that incorporates factoring and invoice discounting. Again, you release the value held within an asset – this time, it’s your sales ledger.

The time lag between sending out an invoice and being paid can be very lengthy in some industries, and invoice finance is ideal for addressing this problem. Even a relatively common 30-day time lag can negatively affect your operational ability, however, so how can invoice finance help?

How do factoring and invoice discounting work?

Factoring

The lender purchases your unpaid invoices and advances a proportion, typically 80-90 per cent of each one, soon after it’s issued. The remainder of the money is released when your customer pays in full, net of the lender’s fee. A factoring agreement authorises the financier to take control of the sales ledger, which can be beneficial if credit control is time-consuming or onerous for you.

Invoice discounting

Invoice discounting is essentially a loan from the financier that uses your unpaid invoices as security. The lender doesn’t have control over your sales ledger in this instance, which means that it’s a confidential form of funding. Your customers won’t know that you’re raising finance in this way, which might be important for your brand.

Secured bank loan

Putting forward one or more of your business assets as collateral for a secured bank loan means you could access a lower rate of interest when compared with an unsecured loan. As the lender has the right to repossess the asset if you default on repayments, their risk of lending to you is considerably reduced.

How do secured bank loans work?

Assets typically used as security for business loans include machinery, property, and vehicles. Using your assets in this way provides a lump sum of capital with fixed repayments over a pre-set period.

Benefits of using business assets for financing purposes

There are multiple benefits of raising funding for your company using your business assets. These include the speed with which you can access the finance, the flexible options available, and easier budgeting due to a fixed repayment schedule.

Additionally, as the asset is used as collateral, the funding is accessible even if your company doesn’t enjoy a high credit rating. One of the most important benefits, however, is the improved cash flow that provides a firm foundation on which to operate your business.

Article written by David Tattersall, Head of Client Relations at Handpicked Accountants, part of the Begbies Traynor Group. With over 35 years’ experience in professional services, David has particular expertise in finance, accountancy and corporate insolvency.