Here's how it works: When refinancing an asset with outstanding finance, the new loan simply pays off the remaining balance of the existing loan. Once the existing loan is settled, the asset is then used as collateral for the new loan. Any additional funds that are released beyond the value of the existing loan become available for the business to use. This additional capital can then be reinvested into the business - perhaps to fund expansion, purchase inventory, pay for unexpected expenses, or to provide a buffer for cash flow management.

It's important to note that the success of this strategy depends on various factors including the current value of the asset, the outstanding balance of the existing loan, and the terms of the new loan agreement. Additionally, the cost-effectiveness of refinancing will also depend on the interest rates and terms offered by the new lender compared to the existing finance agreement.

Consider this example: Let’s say you own a piece of construction equipment worth £100,000, but you still owe £40,000 on the existing finance agreement. You can refinance this asset by securing a new loan using the full value of the equipment. The new loan pays off the outstanding £40,000, and the remaining £60,000 (minus any fees or charges) is released as fresh capital for your business. This action effectively frees up cash tied up in the asset without the necessity of selling it.