When businesses in the UK seek funding, one of the first decisions they will make is choosing which type of funding suits their business the most. Among the most common finance options are asset refinance and traditional commercial loans. Both routes can be effective tools to improve cash flow or fund growth, however they differ immensely in their structure, purpose and suitability; depending on your business circumstances.
This blog has been written to help you identify the key differences between asset refinance and traditional loans, helping you to make an informed decision about which route is the most suited to your business.
What is Asset Refinance?
Asset refinance allows you to unlock the value tied up in your business’ tangible assets – such as vehicles, machinery, or equipment. You use these assets as security for a new finance agreement. Your business borrows against the value of an existing tangible asset on your balance sheet, transferring ownership of the asset to the lender, in exchange for a lump sum of capital which is then repaid over an agreed term.
Benefits of asset refinance
Improve cash flow – Unlock cash tied up in assets to be utilised across other areas of your business.
Flexible use of funds – The funds can be used for working capital, expansion, debt consolidation or other requirements.
No need to acquire new assets – Use what you already own. Unlike asset finance, you don’t need to acquire any new assets.
Secured lending – Often, asset refinance is easier to access than unsecured loans.
Typical asset refinance use cases
- Releasing working capital tied up in tangible assets
- Funding expansion without taking on new liabilities
- Restructuring or consolidating existing debt
What Is A Traditional Business Loan?
A traditional business loan is a financial product that provides funding to your business for various purposes. These loans are typically offered by banks and commercial lenders, and the borrower agrees to repay the amount borrowed, plus interest, over a specified period. Business loans are typically based on your business’ financial health, credit rating, and ability to repay – as opposed to being based purely on a specific asset.
Benefits of traditional business loans
Flexibility – You can use these funds for virtually any commercial purpose relating to your business.
No need to use significant assets for security – Some lenders will lend unsecured; meaning they don’t require assets you own to act as security for the loan.
Fixed repayment terms – Budget for your repayments from the outset, with fixed, monthly repayment terms.
Typical business loan use cases
- Funding working capital or day-to-day commercial operations
- Investing in marketing, inventory, or hiring for expansion
- Short-term projects or bridging seasonal cash-flow gaps
Which is right for your business?
Choosing between asset refinance and business loans depends on your business’s financial situation, the assets you own, and what you’re looking to achieve through commercial finance.
- If your business owns valuable assets and you want to raise finance without selling them, asset refinance may be the most suitable option for you.
- If your business is asset-light but has a strong credit profile and financial history, a traditional business loan may be most applicable.
It is also important to consider what stage your business is at. Startups with little trading history can find it difficult to access unsecured loans, making asset-backed finance more viable. Established businesses with reliable income may prefer the speed and flexibility of traditional business loans.
The Mill Wood Approach
At Mill Wood, we take pride in our process and our intimate relationships with a range of lenders and finance houses. It is our role to be as flexible as possible to help you find the most suitable finance to allow your business to flourish.
We work with businesses of all sizes across the UK to structure asset refinance solutions, tailored to your business. Whether you’re looking to release cash from a single asset or refinance a number of assets, we can help you access the funding your business needs.
Interested in exploring the finance options available for your business? Get in touch with our team for a free consultation call.
