Even before the coronavirus crisis hit with a massive impact to the Australian economy, many savvy business operators were already eyeing off the historic low interest rates, from the RBA, with a view to refinancing their existing equipment loans.
The emergence of COVID-19 and its far-reaching impacts, has intensified the interest in refinancing as businesses grasp for all the levers available to reduce costs, ease pressure on cash flow and remain viable in these unprecedented times.
Refinancing your existing equipment finance company may be an astute move to take advantage of low interest rates while at the same time reviving your business and shoring up your defences to come out the other side of the crisis in a better position.
This can be especially relevant if you have a very long term equipment loan over 84 months and are part-way through the loan term or have multiple loans on different pieces of equipment that you would like to roll into one monthly repayment to streamline your finances and ease cash flow.
You may also have had a change in business structure or business objectives since you established your existing loan. Perhaps the benefits from Chattel Mortgage or Leasing or CHP are no longer working for your business and changing to a different commercial finance product will deliver better outcomes.
We’ve outlined a range of pros and cons to consider before you give Jade a call to talk equipment refinancing.
The Finance Process
- Equipment refinancing involves establishing a new loan for the balance owed on your existing equipment finance loan.
- It may be through your existing bank or lender or a different lender.
- Your Jade consultant will go through a similar process as when setting up all equipment finance deals, sourcing you the best offer from our lending panel at the cheapest rates.
- The new finance package will have a few fixed repayment, new loan term and new residual/balloon/buyback.
If you are experiencing changes in your business structure or objectives, as addressed above, changing to a different type of finance product may give you greater benefits.
- Your repayment record with your existing lender will be considered.
- Income will be closely examined by lenders, especially under the current coronavirus conditions. Some businesses have seen a downturn due to forced closure of their business or their customers but will expect to bounce back quickly when they emerge from hibernation. Others will be anticipating a much slower recovery while for others, the future is not as clear.
- To what extent your business is relying on the 6 month JobKeeper program and other short-term stimulus measures will be considered.
- If you have applied to a lender for a 6 month deferral of repayments on any business loans, this may be viewed negatively by prospective new lenders.
- The value and security of any personal guarantees you may have given for your business, eg your home, will be assessed in the COVID-19 scenario. Property values in some capital cities had been on a recovery trajectory prior to the coronavirus, but whether this will continue is uncertain.
What you may achieve
There are a number of ways to approach refinancing to achieve different objectives:-
- Use the low interest rate scenario to reduce your repayments while keeping the same loan term.
- Keep the same repayment level while reducing the loan term to payout the equipment loan faster.
- Retain the repayment and loan term but reduce the balloon/residual.
All strategies have an outcome and each needs to be considered in view of your individual circumstances.
If you would like to discuss refinancing your equipment loan, please contact a Jade consultant for a confidential conversation. Call 1300 000 003