Commercial Finance Education
Asset Refinance
Unlock tied-up working capital from machinery and commercial vehicles your business already owns.
What is Asset Refinance?
Asset Refinance (also known as Sale and HP Back or Sale and Leaseback) allows a business to release cash equity tied up in existing, unencumbered machinery or vehicles. The finance provider purchases the equipment based on an independent valuation and leases or hires it back to your business over an agreed term, allowing uninterrupted operational use.
How Ownership Works
Your business sells its unencumbered asset to the finance provider, generating an immediate lump-sum cash injection. You then retain continuous possession and operational use while paying regular instalments. Ownership can either return to your business at term end (Sale and HP Back) or conclude via lease mechanisms.
Typical Use Cases
Raising working capital to fund business growth, acquisitions, or seasonal cash flow requirements
Restructuring existing debt into lower-cost, asset-backed repayment terms
Refinancing equipment coming to the end of a primary lease with an existing lender
Unlocking embedded equity in high-value plant to fund deposits on new machinery acquisitions
Financial, Tax & Accounting Considerations
VAT Treatment
Where the asset is sold to the finance provider, VAT treatment depends on whether the original transaction qualified as a second-hand goods margin scheme or standard VAT. Most commercial equipment refinance transactions are structured to be tax-neutral under HMRC rules.
Accounting Treatment (IFRS 16 / UK GAAP)
The transaction replaces fixed asset value with liquid cash on the balance sheet, with a corresponding finance liability. Any gain or loss on sale may be amortised over the lease term depending on applicable UK GAAP standards.
Term Considerations
Refinance terms typically range from 24 to 60 months, depending on the asset’s age, operational condition, and remaining economic working life.
Residual Value & Balloon Risk
Advance rates typically range from 60% to 80% of the asset’s orderly liquidation value (OLV) or forced sale value (FSV) as determined by an accredited independent plant and machinery valuation.
Commercial Strengths & Limitations
Commercial Strengths
- ✓Immediate cash injection without disrupting business operations
- ✓No need to sell off revenue-generating machinery to raise capital
- ✓Asset-backed lending typically offers lower interest margins than unsecured commercial loans
- ✓Flexible term structures tailored to current business cash flow
Commercial Limitations
- —Assets must be unencumbered (or have sufficient equity after clearing existing finance balances)
- —Requires independent physical or desktop inspection and valuation
- —Asset must have an identifiable secondary market resale demand
- —Older equipment (typically > 10–12 years) may not qualify
Worked Scenario: Precision Engineering Firm Releases £180,000 Capital for Expansion
Commercial Outcome
The company received an immediate £180,000 liquidity injection (75% loan-to-value) to hire senior engineers and purchase raw materials for a major aerospace contract, with the machines remaining fully operational on the shop floor.
Ready to apply for Asset Refinance?
Submit your asset quote and business details through one structured application. TAFM matches your criteria with active UK lenders.