Often, yes. If an asset is worth more than the amount needed to settle its current agreement, a new lender can typically pay off the existing finance company and advance some or all of the difference, your equity, to the business. The British Business Bank confirms that you don't need to own 100% of an asset to refinance it.
If you owe more than the lender will advance against the asset, there's a shortfall and usually no cash to release unless you cover the gap or add other assets. Refinancing usually extends the time you're paying, which can raise the total cost, and the asset can be repossessed if you don't keep up the new repayments.
How refinancing a financed asset works
On hire purchase, the finance company owns the asset until you've made the final payment. The British Business Bank notes that selling it isn't an option until the term ends unless the agreement allows early settlement. So you can't simply offer it as security elsewhere; the existing agreement has to be settled as part of the refinance.
In practice the steps usually look like this:
- Get a settlement figure from your current finance company, showing what it would take to close the agreement on a given date.
- The new lender values the asset, using its own valuer or a desktop check depending on the type and value.
- The lender sets its advance, normally a proportion of that valuation rather than the full figure.
- Completion: the new lender pays the settlement directly to the old finance company and sends the balance, after any fees, to the business.
- You keep using the asset and make payments under the new agreement, typically hire purchase, a refinance loan or a sale and leaseback.
A worked example
The figures below are purely illustrative, to show the arithmetic. Real advances depend on the lender, the asset and your circumstances. The British Business Bank uses a similar example, with an oven worth £20,000 and £2,000 still owed on hire purchase, where the lender settles the old agreement and lends against around 70% of the asset's value.
| Amount | |
|---|---|
| Lender's valuation of the telehandler | £80,000 |
| Advance at an illustrative 70% of valuation | £56,000 |
| Settlement figure paid to the existing finance company | £30,000 |
| Equity released to the business, before fees | £26,000 |
The equity that matters is based on the lender's valuation, not the price you paid or what a dealer advertises similar kit for.
Reading your settlement figure
A settlement figure isn't always the same as the balance shown on your last statement. Depending on the agreement it may include outstanding capital, interest to the settlement date, an early settlement charge, any option to purchase fee and arrears. Figures are normally valid only until a stated date, so the new lender will usually request an up-to-date one close to completion.
It's worth reading your current agreement before you start. Some carry significant early settlement costs, which can eat into the equity you'd release. And if the asset is on an operating lease or contract hire rather than hire purchase, you don't have an ownership stake to refinance in the same way.
What if you owe more than it's worth?
A shortfall, sometimes called negative equity or a deficit, happens when the settlement figure is higher than the amount a lender will advance against the asset. It's common with kit that has depreciated quickly, agreements with a large balloon payment at the end, or assets bought at the top of the market.
A shortfall doesn't always rule refinancing out, but the options narrow:
- Pay the difference from cash so the new lender can take a clean title.
- Offer additional assets the business owns outright, so the combined equity covers the gap. This is common with vehicle refinance across a fleet.
- Wait until a few more payments have reduced the balance, if the asset is holding its value.
- Look at a different product, such as a secured business loan against property, which carries its own risks.
Why businesses refinance financed assets
The most common reason is that the business needs cash and conventional funding isn't available. If your bank has said no to an unsecured loan, the equity that has built up in machinery or vehicles you've been paying for can be a practical alternative, because the lender is relying on the asset as well as your credit profile. Our guide on being turned down for a business loan covers the wider options.
Other reasons include reducing monthly payments by spreading what's left over a longer term, bringing several agreements with different lenders into one, or funding a balloon payment that's coming due. Each of these can increase what you pay overall, so compare the total cost of the new agreement with what you'd pay by leaving things as they are. Where the aim is consolidating several loans or advances, business debt refinancing explains the trade-offs.
Risks and costs to weigh up
- Repossession: the asset secures the new agreement and may be repossessed if you don't keep up repayments.
- Personal guarantees: lenders may ask directors to guarantee the borrowing, making them personally liable if the business can't pay.
- Longer to pay: resetting the term on an asset you were close to owning means more months of payments and usually more interest.
- Fees: early settlement charges on the old agreement, plus documentation or valuation fees on the new one.
- Tax: a sale and leaseback involves selling the asset. GOV.UK's HS252 helpsheet explains that selling an item you claimed capital allowances on can create a balancing charge, so speak to your accountant before you proceed.
How we can help
We're a credit broker, not a lender. We'll gather your settlement figures, asset details and what you need the money for, then approach lenders on our panel that refinance plant and machinery, vehicles and equipment, including part-financed assets. If the numbers don't work, we'll say so rather than push a deal that leaves you worse off.
Call us on 01604 355800 with a recent settlement figure to hand and we can give you an early view.
Key takeaways
- You can often refinance an asset that's still on finance if it's worth more than the settlement figure.
- The new lender typically pays off the old agreement and releases a proportion of the remaining equity.
- Settlement figures can include early settlement charges, which reduce what you release.
- If you owe more than a lender will advance, you may need to cover the shortfall or add other assets.
- The asset can be repossessed if repayments aren't kept up, and resetting the term can increase total cost.
We are a credit broker, not a lender. Any finance is subject to status and the lender's assessment. This guide is general information, not personal financial, legal or tax advice.
Sources checked
Information checked on . General information only, not financial, legal or tax advice. Finance is subject to status and lender approval.