Decision Time: Asset Refinance vs Overdraft Replacement

In order to succeed and achieve a sustainable future, you must ensure that your business has the ability to grow and run reliable day-to-day operations. However, this requires access to sufficient amounts of capital, which can seem quite a tall order, especially if you need it at short notice. But rather than depleting your personal savings or diverting funds away from other areas of your business, you could explore what the Alternative Finance industry has to offer. Two products that you could use to support your goals are Asset Refinance and Overdraft Replacement. But in order to choose which of these options is the most appropriate for your individual business’ needs, you must ensure that you’re fully aware of the pros and cons of each.

Asset Refinance

Asset Refinance allows you to release up to 100% of the equity in one or more of your business’ unencumbered assets in order to generate a lump sum, which usually isn’t subject to any usage restrictions. This can involve equipment, machinery or vehicles, providing that they aren’t fixed into the structure of your premises. But, in order to determine the amount of equity you can release from each asset, lenders will use the services of a qualified surveyor who will appraise them. If your application is successful, you could receive an agreement with a term of up to 5 years, during which you’ll need to make Fixed Monthly Repayments, plus interest.

Because Asset Refinance is a secured form of Asset-Based Lending, any assets that you put forward as collateral could be repossessed should you default or fall behind in the repayment scheme. However, this also reduces the amount of risk that lenders are exposing themselves to, which encourages them to offer you a more favourable interest rate. However, you should also be aware that some lenders may also expect you to pay for any surveyor’s fees, as well as any additional service fees when you refinance current assets.

Looking to grow your business? Need help supporting your day-to-day operations? Apply for Business Finance or learn more about how you could benefit.

Overdraft Replacement

Meanwhile, if you need access to quick cash you may want to consider applying for an Overdraft Replacement, which can be arranged as either a Secured or Unsecured agreement. This form of lending works by extending a Line-of-Credit to your business, which provides you with an allowance based upon your previous income and used for a wide variety of purposes. Plus, you aren’t obliged to make use of the funds that are made available to you but anything you do draw down is subject to interest and will need to be fully repaid within 30 - 90 days, depending on the terms of your agreement. However, once this balance is repaid, you instantly have access to this allowance again and are able to withdraw and repay funds on a revolving cycle. As such, this enables Overdraft Replacement to behave much like a credit card, granting you access to quick cash whenever you may need it.

However, if you withdraw more than your stated credit limit, you will be charged both interest and an additional overdraft penalty. So, although Overdraft Replacement offers you a number of advantages, you may find it restrictive if you need to borrow a larger amount of capital.

Need help choosing the most appropriate finance agreement for your business?

Finding the funds you need to support your business’ development isn’t easy, but it’s still a vital requirement for ensuring the long-term success of your venture. However, there is a wide range of business finance solutions available to SMEs so, rather than forcing your business into financial uncertainty, you could explore what the Alternative Finance industry has to offer. All you need to do source an agreement suitable for your business, which often becomes a challenge in itself. Fortunately, you don’t have to do it alone.

At Rangewell, we’re an Access to Finance specialist and have mapped over 400 lenders to offer you an overview of more than 23,000 business finance products. Our services are free to use and we’ll also guide you through the application process. So whether your funding need is for cashflow, property - such as extending Property Development Finance or looking for a Commercial Mortgage, Asset Refinance or Revolving Credit, call on our expertise or apply for Business Finance today. Our service is free.