Business.Finance works with commercial operators to structure low rate solutions to refinance balloon payments for trucks, motor vehicles and equipment loans. Operators that took out new commercial funding when rates started to fall back in 2020 or prior, may be coming up to the end of the funding term. That means addressing the payment of the final lump sum balloon or residual.
Most will have opted for this feature when structuring their initial funding arrangements as it can offer significant benefits in reducing the monthly payments and as such, easing cash flow pressure. But with the end of the term comes the time to pay the lump sum due.
Depending on the percentage originally agreed for this inclusion and the initial total borrowing, the amount due could be sizeable. An amount beyond the cash reserves held by the enterprise. One option which many choose is to time replacing assets with the end of the credit term and the due date for the final payment. Using resale earnings or the trade-in on new to finalise the payment to the lender.
Where assets are still in good working order and the decision made to keep them, operators can consider taking out a new funding arrangement to settle the final payout. This option can offer benefits through cash flow flexibility and tax deductions available with commercial funding products.
Funding to cover final payouts is available for a range of commercial assets including all types of motor vehicles and heavy vehicles, plant, machinery and a wide range of equipment used in commercial operations. Options are available for all types and sized operations including large companies, partnerships and smaller self-employed operators and sole traders.
But to be a workable option, taking on any new funding has to be affordable and that can entail sourcing the lowest rates. Objectives which are our focus when sourcing funding for our clients.
Preparing to Refinance Balloon Payments
It can be worthwhile and valuable time spent to do some preparation and forward planning for funding final payouts. Check the exact date that the amounts are due to be paid to the lender and allow sufficient time to source and explore your options and consider costs and returns.
Earmark say 4-6 weeks prior to start talking options with our brokers – though we can arrange 24 hour approvals for those not so well-prepared. In addition to the due date, we will need to know the exact payout figure required for the new funding.
Contact will need to be made with the lender to obtain this figure. This is usually best done over the phone. Lenders typically provide a figure for a certain date due to how interest is charged. So ‘as of a certain date’ a ‘certain amount’ is due. Request the figure that will be due for final settlement.
The next step can be to prepare estimates on new funding using our heavy equipment financing calculator. This is an extremely useful tool for generating rough ballpark repayments on new funding for a range of assets using all types of funding products. The settlement amount obtained from the lender can be used as the total required.
Figures can be varied for term and percentage of balloon to arrive at an estimate that will work with projected cash flow over the preferred term. When entering the interest rate, our current rates can be used, but be mindful that the funding will be for used assets. Rates advertised are for new goods. Used goods may attract a different rate. That we can confirm to you at the quote stage.
Refinance Balloon Payments Process
Acquiring new funding for final payouts follows similar processes and conditions as refinancing funding part-way through a term but without the lender charges for terminating credit before the end of the term. The amount payable on settlement will be the figure obtained from the lender. It will include the original percentage and interest.
Operators can select the same type of credit as for the original funding -Rent-to-Own, Commercial Hire Purchase, Lease or Chattel Mortgage, or opt for a different product. These are secured credit products, and their suitability may depend on the lender agreeing that the assets, now used, are acceptable security.
If the assets are accepted as security and a secured credit facility selected, the relevant tax deductions as determined by the ATO can be realised. For operators with an eye on the new IAWO policy posed by the Albanese Government in the 2023/24 Budget, this applies to new assets. Refinancing existing assets does not fall within the guidelines.
Where a lender rejects the assets as acceptable security, we can source quotes for an Unsecured Business Loan to cover the settlement payout. While attracting higher rates than secured facilities, unsecured options can have flexibility and we can structure the most workable repayment schedule.
If the time is approaching to settle an existing credit arrangement, have an initial conversation with one of our brokers about the low rate options we can offer
Contact Business Finance on 1300 000 033 to discuss your options to refinance balloon payments.
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.
