Asset Finance Facilities: Releasing Cash Tied Up in Equipment for Manufacturing, Mining and Medical Businesses

Many capital-intensive businesses are asset rich and cash poor. Over the years they've bought machinery, vehicles and equipment outright, or paid off the finance, and now millions of dollars sits on the factory floor, the mine site or in the consulting rooms, earning its keep but doing nothing for the bank balance.

That equipment can be used to raise capital. Asset finance isn't only for buying new equipment. Used well, it can release cash from the equipment you already own to fund growth, working capital, an acquisition or a tax bill, without giving up property security.

Ways to Release Cash From Existing Equipment

• Sale and leaseback. You sell equipment you own to a financier and lease it straight back. You keep using it exactly as before, and the sale price lands in your account. At the end of the lease, you can usually buy it back, extend the lease or upgrade.
• Equipment refinance (cash out). The financier takes security over equipment you own outright and advances a loan against it, usually as a chattel mortgage. Ownership stays with you.
• Refinancing existing asset finance. If equipment is partly paid off, refinancing the remaining balance over a new term can release the equity built up and reduce monthly repayments.
• Consolidating asset facilities. Businesses often have a dozen separate contracts with different lenders. Bringing them into a single facility with one limit can simplify reporting, lower costs and create headroom for future purchases.

How Lenders Value Equipment

Lenders don't lend against what you paid for the equipment, or even what it's worth to your business. They lend against what they could sell it for if they had to. That depends on:

• The secondary market. Equipment with a deep resale market, such as trucks, excavators and forklifts, attracts a higher advance than specialised equipment few buyers would want.
• Age and condition. Newer, well-maintained equipment with service records supports a higher advance.
• Mobility. Equipment that can be removed and resold easily is worth more as security than equipment built into a production line.
• Technology risk. Equipment that dates quickly, such as some medical imaging, loses resale value faster.

Lenders typically advance a percentage of an independent valuation, with the percentage depending on how easily the equipment could be resold. A broker who knows each lender's appetite by asset type can make a material difference to how much you can raise.

Manufacturing

Manufacturers often hold significant value in CNC machines, presses, injection moulders, packaging lines, forklifts and vehicles. Releasing that capital can fund raw material purchases, a large new contract, expansion into new premises or the next round of equipment upgrades. Standalone machines with an active resale market are the easiest to fund. Bespoke or integrated production lines need a lender that understands the asset, and may be valued lower. See manufacturing finance.

Mining and Mining Services

Mining contractors, equipment hire businesses and mining services companies hold some of the most financeable equipment there is: excavators, dozers, haul trucks, loaders, drill rigs and light vehicles. These assets have deep secondary markets, which lenders favour. Releasing equity from an owned fleet can fund mobilisation for a new contract, wages ahead of the first progress claim, or fleet expansion. Lenders will also look at contract terms, the principal's quality and the commodity outlook. See industrial and mining finance.

Medical, Dental and Veterinary

Practices invest heavily in imaging equipment, dental chairs, surgical lasers, diagnostic equipment and fit-outs. Specialist medical lenders understand practice cash flows and will often lend on stronger terms to healthcare professionals than to other businesses. Releasing capital can help fund a practice purchase, a new location, a partner buy-out or new technology. Fit-outs have little resale value on their own, so they're usually funded based on the strength of the practice. See medical and veterinary finance.

Watch Out for Existing Security

If you have bank debt, your bank very likely holds a general security agreement over all of your business assets, including equipment. Before an asset financier can take first-ranking security, the bank may need to release or subordinate its interest over that equipment. Every security interest is registered on the Personal Property Securities Register (PPSR), so lenders will check it. Raising this with your bank early, and agreeing which assets sit with which lender, avoids last-minute delays.

Illustrative example: a mining services contractor won a new site contract that required extra machines and several months of wages before the first payment. Their existing fleet was largely paid off. A sale and leaseback over part of the fleet released enough cash to fund mobilisation, while new equipment for the contract was funded through a separate asset facility. The business took on the contract without touching its overdraft or offering property security.

Things to Weigh Up

• Purpose. Releasing cash makes most sense when it funds something that earns a return: growth, a contract, an acquisition or clearing more expensive debt.
• Term. Match the term to the useful life of the equipment. Don't still be paying for equipment you've had to replace.
• Tax. Sale and leaseback and chattel mortgages are treated differently for tax and GST. Talk to your accountant before you choose a structure.
• Balloon payments. A residual lowers repayments but leaves a lump sum at the end. Plan for it.

How We Help

We review your asset register, identify which equipment can raise the most capital, and tender the facility across banks, asset financiers and specialist industry lenders. We also handle the conversation with your existing bank about security, so the deal doesn't stall at settlement. Learn more about plant and equipment finance and equipment finance.

Book a free, no-obligation consultation and we'll show you how much capital your equipment could release.