Most businesses are constantly on the look-out for ways to reduce their operating costs without compromising on the quality of their product or service. In the current economic environment with government pandemic support pretty much stopped, labour shortages in some sectors causing wage growth or limited operating hours and other pandemic and global effects prevailing, keeping costs under control can be a key concern. Jade Finance assists businesses wanting to improve productivity and profitability by refinancing to reduce business outgoings.
With lending rates currently at historic lows as the RBA continues with it monetary policy strategy, now could be a good time to consider refinancing existing business loans and finance to achieve a better operating outcome. In this article we cover off on some of the key features and details around refinancing for business.
Reasons to Refinance
While currently reducing operating outgoings and taking advantage of lower interest rates are two key motivations for refinancing, it also serves a number of other purposes, such as:-
- When the business organisation changes. This may be when a partnership is dissolved and one party takes over the business or when a new party takes a stake in the business. When a business changes company status and other structural issues. If the party leaving was a party to a loan or put up security against the loan such as is often the case with businesses, this may trigger the need to refinance.
- To secure a cheaper interest rate loan for finance that was arranged when rates were much higher.
- When reviewing the overall debt position of the business and looking to improve the balance sheet.
- To merge several loan commitments into one.
- To achieve lower monthly loan repayments to take the stress off cash flow if turnover is currently compromised due to COVID restrictions.
- To change the finance term in order to pay out the finance earlier to improve the business position or achieve a lower monthly commitment.
- To switch to a different form of finance such as switching a Rent to Buy loan to a Chattel Mortgage contract.
- Financing the balloon or residual at the end of the loan period.
How Refinancing Works
We have provided a detailed coverage of business finance refinancing but here are a few points to keep in mind.
- This is a new loan arrangement and as such the usual lender fees and charges associated with securing finance will apply.
- All the usual application processes and procedures will apply around risk assessment by the lender.
- Break fees or penalties may apply and these need to be factored in as a cost component of the process.
- Goods purchased new would be treated as used when refinancing as they would have been in use.
- The refinancing may be sought from the same bank or lender as the original loan or from a different lender.
- The finance product can be the same or another product – Chattel Mortgage, Leasing, CHP or Rent to Own can be selected.
- If thinking about refinancing with Chattel Mortgage with a view to claiming temporary full expensing, refer to the eligibility criteria. It is our understanding that to meet the criteria goods need to be acquired as new to the business and as such refinancing would not meet that criteria.
- Refinancing is available for motor vehicle finance, truck loans, marine finance, equipment finance, plant and machinery finance and for general business loans including overdrafts and secured and unsecured business loans.
Refinancing can be arrange for asset loans with:-
- Chattel Mortgage
- Rent to Own
- Commercial Hire Purchase
Balloon and Residual Payment Refinancing
When the balloon or residual payment is due at the end of the finance term, refinancing is widely-used. This allows the business to further extend the repayment period with a new loan established without having to use cash reserves to finalise the amount.
A new balloon/residual is an option when refinancing.
Achieving Lower Outgoings
One of the common motivations for refinancing is to reduce the monthly outgoings for the business. That is to make repayments on existing loans cheaper. When structuring refinancing loans, our consultants work with our customers to meet specific objectives.
To achieve a lower monthly repayment, a longer loan term could be sought or a cheaper interest rate. Varying either of these loan components will deliver a reduced repayment. The costs associated with finalising the existing loan and establishing the new loan should be considered.
Our cheap interest rates apply to refinancing in applicable loan categories so a lower rated loan is achievable. To see how refinancing may reduce your outgoings, head to our finance calculator for the specific category of loan you are after – motor vehicle, truck, equipment, commercial.
By varying the values input, you will see how the repayments vary. Refinancing is widely-used across businesses in many industries and can be effectively utilised to reduce the monthly outgoings without having to compromise or adjust other business settings.
Contact Jade Finance 1300 000 008 to discuss refinancing your business loans.
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.