A new financial year is a good time for new year business resolutions. A time to reflect, reassess and review the way you’re operating, your costs and especially your financial commitments. Is sticking with the same old-same old way you’ve always done it really working for you? How has the COVID-19 pandemic impacted your business and the way you work? What uncertainties does the ongoing threat of coronavirus present to your business? How can you strengthen your business situation to withstand risks and threats? What do you need to set up to be in a better position to capture emerging opportunities? Click here for more information on business restructuring methods here.
How you approach your new financial year assessment will depend on your individual business but for many it will include a review and possible overhaul of equipment financing arrangements. The snap lockdowns and other impacts, both global and local, on businesses due to coronavirus have highlighted the need to be ready for quick changes – positive and negative. Increases in the business activity created through demand and stimulus packages or cutback due to lockdowns, border closures and supply chain issues.
Reviewing equipment finance and loans with a view to refinancing at a cheaper interest rate can be an effective strategy to recharge your business for financial year 21/22 and beyond. Refinancing is a widely sought process and our consultants are highly skilled in structuring workable and cost-effective equipment refinancing deals. But it’s not all about just getting cheaper interest rates. The complete scope of upsides and downsides of refinancing should be considered. We provide a guide to assist in deciding if this is a strategy that will benefit your business.
Equipment Refinancing: Deep Dive
It’s no secret that interest rates across the board have dropped significantly in the past few years. The RBA has cut the official cash rate to historic lows, with two rate cuts in 2020 to simulate the economy. For businesses that have equipment finance contracts over 5, 6, or 7+ years, taken out several years ago, the rate on the same loan now may be significantly lower than when the loan was established. More info.
By referring to our equipment loan interest rate guide for current rates and your existing equipment finance contract, you can calculate possible repayments and see what you may potentially be saving in repayments and on total interest over the remainder of the equipment finance term.
While the interest rate and subsequent lower equipment finance repayments appear a major incentive to refinance, there are other aspects to take into account.
- Refinancing an existing equipment finance deal involves setting a new loan which encompasses the amount outstanding on the existing loan (the payout figure) and the relevant fees and charges in establishing a new finance contract.
- The new finance deal can be for the same or a different finance product as the existing: Leasing, Rent to Own, Chattel Mortgage or Hire Purchase. Interest rates vary for these products and refinancing may present the option to move to a lower rate finance facility.
- Businesses with bad credit, no doc and low doc equipment finance may have the chance to achieve a better loan deal through refinancing partway through the existing loan term. It could be assumed that during the initial years of the loan term, the business would have acquired the documents required for a fully documented loan and this may attract better loan conditions. Bad credit applicant may have significantly improved their credit profile and be in a position to be offered more appealing loan conditions. Refinancing may achieve these objectives.
- The current lender will impose break fees for finalising the equipment finance prior to the scheduled conclusion of the fixed loan term. These fees can be included in the new loan but need to be considered against the reduced interest and possible repayment levels achieved through refinancing. The usual loan establishing fees would be charged on the new finance deal.
- The equipment being refinanced would be considered second-hand and as such this may affect the finance offered. Lenders will take into account the age and condition of the equipment when making loan offers.
- Monthly outgoings and the overall business commitments can be restructured through achieving lower equipment finance repayments through refinancing. A position that may relieve cash flow pressure and free up funds for additional investments in equipment or business growth.
- If approaching the end of an equipment loan term, the balloon or residual can be refinanced.
Securing Workable Equipment Refinance:
Jade Equipment Finance provides refinancing services for all types of finance deals across all types of equipment. As we do when setting up new equipment finance deals, we source the cheapest quote from our specialist equipment lenders. For refinancing, a total loan amount would be sought to cover the pay-out amount and any charges pertaining to finalising the existing loan and those relevant to a new finance contract.
With skills and expertise in refinancing, our consultant's structure deals which are workable and cost-effective. However, should the end result of the refinancing deal not present an advantage to a business, it would not be strongly recommended.
As in handling all equipment finance deals, our major priority is achieving the best deal in the best interests of our customers. Enquiries are obligation-free so please reach out and discuss the options we can offer to recharge your business to power through 2021/22.
Contact 1300 000 003 for equipment refinance quote.
DISCLAIMER: IF MISINTERPRETATIONS, MISREPRESENTATION OR ERRORS EXIST IN THIS ARTICLE, NO LIABILITY IS ACCEPTED. THE INFORMATION IS PROVIDED ONLY FOR GENERAL PURPOSES AND NOT IN ANY MANNER INTENDED AS THE ONLY SOURCE FOR MAKING FINANCIAL DECISIONS. THOSE THAT CONSIDER THEY REQUIRE ADDITIONAL GUIDANCE OR ADVICE SHOULD REFER TO AN INDEPENDENT FINANCIAL ADVISOR.