Asset refinance: raising funds by leveraging existing assets

The requirement and its challenges

One of Spark’s Partners referred a lead through Spark Connect for a fruit farm seeking to raise funds to expand their business in response to high product demand. Although the business had the capacity to fund the expansion internally, their preference was to minimise internal funding to preserve working capital. Spark did not have a specific target amount but aimed to raise as much as possible for the client.

The business had a common structure found in agricultural sector: receiving group revenue in a Partnership with multiple limited companies as subsidiaries.

The client wanted unsecured funding options and was unwilling to offer property as security.

As the structure was complex with a high volume of intercompany transfers, securing an appropriate unsecured loan was difficult, as the profile was considered too risky.

After analysing the business's financials and assets, Spark advised proceeding with asset refinance. This approach would allow the assets themselves to be used as collateral, aligning with the client’s preference not to use property. Asset refinance also offered more competitive terms and rates compared to traditional unsecured loan options.

Another potential challenge was the business’ recent borrowings. Although asset refinance utilises the asset as security, lenders still conduct affordability checks based on financials. This could flag weaker short-term liquidity despite the business’ strong turnover.

The business owned three pieces of agricultural plant machinery. Asset refinance had the potential to secure the intended amount, depending on asset inspections. Furthermore, it would not impede the exploration of other debt options in the future.

‍

Outcome

Thanks to Spark’s expertise, they were able to identify options that could overcome the many challenges presented.

By utilising the owned assets, Spark secured an approval for £160,000 over five years at a lower rate than atypical unsecured loan. This refinancing also removed £50,000 of existing funding still outstanding against the assets, leaving the client with a net £110,000.

The client was pleased with the offer and proceeded to secure the funds.

After securing the best available option, Spark is now exploring additional funding opportunities, which would be arranged through shorter-term loan options.

However, the use of Asset Refinance has significantly reduced the client's monthly payments. Additionally, the assets were refinanced into the main company, with guarantees provided by the other group companies.

Asset Refinance

Asset refinance involves securing a loan using existing assets, typically to raise capital or consolidate debt.

It is similar to asset finance, with the main difference being that asset finance funds new asset acquisitions, while asset refinance leverages the value of assets already owned by the business.