Possibilities of refinancing to offset pressures from increased operating expenses
With the latest CPI indicating more inflationary pressure, business owners may consider refinancing to offset the pressures from increased operating expenses.
Most widely used to achieve lower interest rates on current loans, refinancing does have broader purposes and may be a realistic solution in the current economic conditions. It may form an integral component of an operation-wide finance restructure and/or part of a raft of measures undertaken to cut outgoings as prices continue to rise.
The current labour situation in Australia may also give rise to the need to consider refinancing. The tightness in the market has meant that many businesses are operating well below capacity. Thus limiting income while costs and outgoings continue to rise.
Refinancing may contribute by achieving reduced finance repayment amounts to ease the monthly outgoings commitments. Something which may be significant in affecting a positive change to the bottom line and easing cash flow pressures.
The latest data on inflation from the Australian Bureau of Statistics (ABS) www.abs.gov.au
reveals that inflationary pressures are continuing. This is particularly being seen in areas such as new dwelling construction, food and beverages and of course fuel. Electricity prices are of major concern to businesses and the release of the December Quarter CPI will reveal the impact of those on inflation.
We explain the process involved in refinancing and make suggestions for alternative finance solutions.
Refinancing Business Finance
Refinancing involves sourcing completely new finance which will replace a current loan. It can apply to a wide range of loans, including equipment finance
, truck loans, motor vehicle finance and other commercial loans. The objective in most cases, will be that the new loan will cover all monies owing on the current loan. That would include residuals and balloons as well as any fees and charges which could be applied by the existing lender for exiting the loan early.
As a completely new loan, businesses can select a different bank or non-bank lender and a different or the same finance product – Chattel Mortgage, Lease, Commercial Hire Purchase or Rent to Own. The same decision-making process should be followed, including referring to the accountant in regard to the suitability of a particular product for the business set-up and the tax benefits and implications of refinancing.
A business application process would apply when we source quotes from across our wide lender base. Applications are addressed and assessed on an individual basis, with credit profiles reviewed and varying interest rates depending on the asset and the industry.
Our consultants focus on securing a quote that best meets customer requirements. Achieving a cheaper interest rate may be the objective and still a possibility for some loans. It would depend on when the original loan was secured as rates have undergone significant shifts, from historic lows in 2020 and 2021 to the latest hikes over the past nearly a year.
Where the objective of refinancing is to achieve a reduced monthly finance payment, we focus on securing the cheapest rate and on the structure of the loan. That means achieving the preferred finance term and residual/balloon in conjunction with the rate to deliver the target repayment. Varying both term and residual/balloon will reduce the repayment at the same interest rate. But with refinancing, consideration must be given to the size of the loan amount, especially when costs are included.
The interest rates offered for refinancing will be at current available interest rates. It refinancing a loan that was acquired when rates were historically low, that may mean a higher rate. But with the right structure, a lower repayment level may still be achievable.
Also to be mindful of is the possible differences between interest rates and finance conditions available for brand new equipment compared with used models. The refinancing would apply to used equipment even where the equipment may have been new when originally purchased and financed. Temporary full expensing
would likely not apply as this tax measure applies to new assets.
While refinancing can be an extremely useful solution for many business owners, if the quote received does not work, other solutions may be considered. Talk to us about how a Business Overdraft
or Business Loan may be more effective in offsetting the impacts of increased costs on the operation.
As specialists in the business finance sector, we work closely with our customers to develop workable and cost-effective solutions that are specific targeted to deliver positive outcomes.
To discuss refinancing options, contact Business Finance Australia 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.