Asset acquisition funding for motor vehicles, trucks, machinery and equipment, is typically secured over long terms, up to 84 months. Allowing what is often a significant acquisition cost to be amortised over as long a timeframe as possible. Making repayments lower and the entire acquisition a cost-effective investment. But over a 7 year period, enterprises can experience changes in operating conditions and other circumstances. Conditions which may require the need for refinancing asset loans. A process of replacing the existing credit arrangement with new a credit contract.
When considering such decisions, there are a number of options to be considered. As commercial credit experts, Jade Finance assists operators compare refinancing asset loans with a range of options and sources a cost-effective solution. Understanding the processes involved, the interest rates and credit conditions of each option may assist operators achieve their most workable outcome, especially for small commercial financing.
The Basics of Refinancing
Refinance involves replacing a current credit contract with a new credit arrangement. The new credit total is requested to cover the full payout on the existing credit, effectively ending that term prior to the scheduled period. The early exit may attract lender fees from the existing lender. Fees and charges will apply from the new lender. These costs need to be factored into the overall cost of the process.
The assets would be treated as used and the relevant interest rates, credit conditions and lender approval criteria would apply. This is particularly relevant for the asset to be accepted as security for the new funding.
The same asset funding facility as the existing arrangement may be selected or a different product. The features of Chattel Mortgage, Lease, CHP and Rent-to-Own, including the tax benefits and treatment of GST would apply. A balloon or residual would be optional.
The same lender may be requested to provide the new funding or a different lender selected. When the new funding is settled, a new repayment schedule is in place. The term and monthly repayment amount may be different from the original funding.
The application would be assessed on the current financials.
Purposes for Refinancing
The purposes and reasons that a commercial operation may seek revised funding arrangements can be many. Some of the more common reasons are to get a better interest rate; to restructure for lower or more suitable repayments; to get a different term; and to finalise a balloon or residual.
Delving deeper, these purposes can emanate from a range of scenarios. Where the original credit approved as a Low Doc No Doc commercial financing or Bad Credit application and credit profile has improved, more amenable terms and rates could be sought. Conditions on the Low Doc credit may be tying up assets as collateral that the operator would like access to.
If the original funding was established when the operation was starting up and a few years the entity is producing impressive returns, better rates and terms may be sought. If an operation has experienced a change in demand for their products and a slump in revenue, the existing repayment schedule may be stressing cash flow. A more workable schedule may be sought.
An enterprise may be undergoing significant internal restructuring or changes and a strategic rework of lending on key assets may be part of that big picture process.
We work with individual owners to fully understand the circumstances and objectives and source the lowest rates, most workable repayment schedule and terms available.
Compare Refinancing with Overdraft
When replacing an existing asset loan the most common practice is for the new funding to also be an asset acquisition funding product. Overdrafts are primarily for short-term cash flow support and can be a flexible drawing down option.
If the reason for seeking to replace existing asset funding is due to repayments stressing cash flow, an overdraft may offer a short term solution until cash flow levels are restored. Leaving the existing asset credit in place.
Interest rates on overdrafts are higher than for secured asset acquisition products. Replacing the existing credit with another asset acquisition credit solution would typically be lower rates and more cost-effective.
Compare Refinancing with Business Loans
A secured or unsecured commercial credit product may be another option when replacing asset funding. Where the purpose is to payout a balloon or residual, where the asset is not considered suitable security, or where the amount required is below asset funding threshold, other options may be preferable.
Secured or unsecured commercial credit rather than a new Chattel Mortgage or Lease may offer greater flexibility and more suitable terms. The rates, which may be fixed or variable, can be competitive depending on the credit history and assets provided as security. A variable rate option may allow for realising savings should the Reserve Bank and/or the lender cut rates.
Expert Refinancing Services
There are many aspects to take into account when seeking to restructure existing asset acquisition credit. As experts in this field, we know all the options and we have the right lenders. We present all options, including the costs involved, so operators can make a fully informed decision, especially those interest in taking out sole trader business loans.
For expert services when comparing refinancing options, contact Jade Finance on 1300 000 008 for quick quotes.
DISCLAIMER: NO LIABILITY IS ACCEPTED IF ERRORS OR MISREPRESENTATIONS ARE FOUND IN THIS ARTICLE. THE ARTICLE IS PREPARED AND PRESENTED FOR GENERAL INFORMATIVE PURPOSES AND IS NOT INTENDED TO BE THE SOLE SOURCE OF INFORMATION FOR MAKING FINANCIAL DECISIONS. THOSE REQUIRING GUIDANCE AND ADVICE SHOULD CONSULT A FINANCIAL ADVISOR.
