Releasing capital for growth

Keith Sangwin – Asset Finance Sales Manager

January usually brings a high number of refinance proposals to United Trust Bank’s Asset Finance division. SMEs from the construction sector are a typical type of business looking to release capital from their existing assets at the start of the New Year. For some it’s simply to boost their cash reserves following the Christmas break over which many companies in the sector shut down for three or four weeks. Others are about to embark on new projects and, depending on the invoicing terms agreed, they may have to wait two to three months for their first income to come through whilst still having to cover their usual overheads and payroll during that period.

An active property market combined with a strong demand for new homes has ensured that the market for construction plant and machinery remains healthy. Residual values on used machinery such as excavators and dumpers are holding up well and this may present an opportunity for companies to consider refinancing some of their existing assets. They may find they have more capital tied up in their plant fleet than they had realised and releasing that capital may enable them to take advantage of investment opportunities.

We completed a typical construction sector case just before Christmas where the business owner wanted to raise £100,000 secured against two unencumbered excavators with a combined value of around £130,000. Once we were satisfied as to the current market value of the plant we completed the paperwork with the broker and advanced the funds to the hirer within twenty four hours. Asset refinance is usually a straightforward and swift means of releasing capital tied up in various vehicles and machinery to be used for any legitimate business purpose. It’s not unusual for us to receive a proposal on one day and pay out the next and we’ve even transacted some on the same day when there’s been a particularly urgent requirement.

We transact a significant amount of refinance business but some funders shy away from it. Other lenders will consider refinancing but may have an age restriction on the asset. For example, they may stipulate that the vehicle or machinery is no more than 10 years old by the end of the finance term. For some types of vehicles the restriction may be as young as 7. Many SMEs, particularly smaller and younger companies, choose older vehicles and machinery because they’re more affordable and have already suffered from the biggest hit of depreciation. We take the view that an older, well-maintained asset may have many more years’ useful service left in it and therefore has a value. As long as the valuation is high enough to provide the security we need for the loan, we’ll look at it.

UTB funds an extensive range of wheeled and tracked assets including construction plant, agricultural machinery, buses, coaches, cranes, recovery vehicles, tractor units, trailers and high performance and classic cars, to name but a few. More recently we’ve expanded the range of assets we’ll fund to include engineering and manufacturing machinery, injection moulding equipment and even a wide range of assets within the media sector such as lenses and cameras. We will broaden this range further throughout 2017 as we develop the skills and knowledge to enable us to provide SMEs with tailored funding and refinance solutions to help them invest in and grow their businesses.