The decision to refinance commercial loans involves new loan arrangements to achieve more workable payments, a better interest rate, and meet new objectives. It is not essential for a business to refinance any of their loan arrangements. But it can form part of an overall review of the business and the end of financial year is a typical time to consider the option, to assist with preparing budgets, operating cost forecasts, and allow greater borrowing capacity for the year ahead.
A current motivation to consider refinancing may be movements in interest rates. The Reserve Bank (RBA) meets again on 8 July to make their next decision on the cash rate. The markets are widely expected another cut, though the global uncertainties as a result of the US tariff policy may impact any cut. As specialists in business financing, we provide a comprehensive service to assist business owners to achieve workable finance across their operation.
Refinance Commercial Loans - Overview
Refinancing is the process of replacing existing financing arrangements with completely new loans. All repayments, residuals, balloons and lender fees for early payouts are usually included in the new loan to finalise the existing loan.
A refinanced loan may be with the same credit facility or a different type of loan which is compatible with the accounting method used by the business. For example, if a business uses the cash method of accounting, they can use Chattel Mortgage and Commercial Hire Purchase for asset loans. If the accruals accounting method is used, Lease, Rent-o-Own and Commercial Hire Purchase can be selected. If the business is looking to refinance from say a Lease to Chattel Mortgage, they may need to change their method of accounting. Under ATO rulings, this can only be done at the start of a new financial year.
The same bank or lender may be used for the refinanced loan or arrangements made with a different credit provider. The best refinancing solution from the most suitable lender is sourced by our brokers.
The standard commercial application form is required to be completed to apply for refinancing and operators must meet the lender criteria.
Loans that Can Be Refinanced
All types of business finance arrangements may be refinanced. This includes:- asset acquisition finance on motor vehicles, trucks and plant, machinery and equipment; Secured and Unsecured Business Loans; and commercial loans such as Business Overdrafts and lines of credit.
Business operators may seek to change from an unsecured to a secured loan through refinancing, where assets are now available as suitable collateral. Lower rates apply to secured compared with unsecured loans.
General Considerations when Refinancing Commercial Loans
Each refinancing deal can have its own specific requirements, but there are general considerations for business owners to keep in mind when contemplating the process. A major factor will be the size of the refinanced loan. The aim with refinancing is to encompass the entire outstanding amount on the existing loan plus the lender fees. Depending on individual lenders, these fees may result in a larger borrowing than had been anticipated. Obtaining a payout figure on the current loan, including the exit fees, can be a starting point to provide an indication of the new loan required.
When refinancing asset loans, the asset is treated as used goods even where the original purchase was for a new unit. Interest rates for used goods would apply and these can typically be higher than on new assets.
The current credit profile and financials of the business would be assessed by lenders with refinancing. Where a business has an existing loan that was approved on a bad credit or low docs basis, and the credit rating and financials are now stronger, refinancing may deliver a better rate and more affordable solution.
Securing Lower Rates with Refinancing Commercials Loans
Securing a lower interest rate is one of the most common reasons that businesses consider refinancing. But will a lower rate be achieved? If refinancing asset loans, used asset finance rates would apply and these may be higher than the rate on the current loan.
If the business credit rating or financial position has improved since the existing loan was secured, a better rate may be an achievable objective. If the rate market has changed significantly since the existing loan was secured, a lower rate may now be achievable.
The prospect of a better rate may depend on whether the current loan is at a fixed or a variable rate. Variable rate loans will be changed by lenders in line with market fluctuations. Requesting a quote can be the best way to find out what rate may apply to your refinanced loan.
Refinance Commercial Loans to Reduce Repayments
Repayments pressuring cash flow due to changed business conditions may be resolved through refinancing. A different loan term may be structured to lower monthly payments. While longer terms reduce repayments, the process would involve accruing interest on the loan over a longer period.
As specialists in commercial financing, we work with individual business to source refinancing options that best meet their objectives.
To refinance commercial loans for the new financial year, contact Business.Finance on 1300 000 033.
DISCLAIMER: THE SPECIFIC PURPOSE IN PROVIDING THIS ARTICLE IS FOR GENERAL INFORMATION ONLY. IT IS NOT INTENDED AS THE SOLE SOURCE OF FINANCIAL INFORMATION ON WHICH TO MAKE BUSINESS FINANCE DECISIONS. BUSINESS OWNERS WHO REQUIRE ADVICE OR GUIDANCE AROUND THEIR SPECIFIC FINANCIAL CIRCUMSTANCES ARE RECOMMENDED TO CONSULT WITH AN ADVISOR OR ACCOUNTANT. NO LIABILITY IS ACCEPTED IN REGARD TO ANY MISREPRESENTATIONS OR ANY ERRORS RE ANY DATA, SPECIFICS, POLICIES AND OTHER INFORMATION AS SOURCED FROM OTHERS.
