Smart Moves: Steps to Refinance Business Assets

Discover the strategic pathways to effectively refinance your business assets, enhancing financial flexibility and growth potential.

Understanding the Whys and Whens of Refinancing Business Assets

The option to refinance business assets can be a strategic move for many companies looking to improve their financial position. By replacing existing debt with a new loan, typically with better terms, businesses can reduce monthly payments, alter loan durations, and free up cash flow. Understanding when to refinance is crucial; it’s generally considered wise to refinance when interest rates drop, when your creditworthiness improves, or when you need to consolidate debt or alter your payment schedule.

It’s also important to consider the ‘whys’ behind refinancing. Whether it’s to take advantage of a lower interest rate, to extend the loan term for lower monthly payments, or to pull equity out of the asset for reinvestment or operational expenses, the reasons for refinancing should align with the company’s broader financial strategy.

Assessing Your Current Business Asset Portfolio

Which Asset Refinancing type is best for you?

Asset refinance can be categorized into two types:

• Sale and HP-Back agreements: In this arrangement, you sell your asset to a lender for a lump sum and make repayments over a set period. Once the agreement is fulfilled, you regain full ownership of the asset.
• Sale and Lease-Back agreements: This option involves selling your asset to a lender for a lump sum and making repayments over a fixed term. However, at the end of the period, you do not retain ownership of the asset. It is either returned to the lender or a new leasing agreement is established.

To qualify for either asset refinancing type, your business must own the asset outright, and an asset valuation is needed to ensure a loan-to-value ratio of 80% or less. The key benefit of asset refinancing is that you can still utilise the asset while unlocking its value, and the repayments are considered a business expense for tax purposes.

Choosing the Right Lender for Asset Refinancing

Selecting the right lender is a key step in the refinancing process. Start by researching potential lenders, including traditional banks, and alternative financing sources. Evaluate their loan terms, interest rates, fees, and customer service reputation. It’s also beneficial to consider lenders who understand your industry and have experience in refinancing similar assets.

Don’t hesitate to negotiate terms or ask for better rates, especially if you have a strong credit history and solid business financials. Remember, the goal is to secure the most advantageous terms for your situation, so shop around and compare offers from multiple lenders before making a decision.

If this seems like a lot of work, fear not. An experienced finance broker can do all of this for you and will negotiate on your behalf and search through their panel of approved funders to find the best deal to match your circumstances.

Navigating the Refinancing Process: Essential Steps

Evaluating the Impact of Refinancing on Your Business’s Financial Health

After refinancing, it’s important to evaluate the impact on your business’s financial health. Review the changes in cash flow, interest expenses, and debt obligations. Consider how the new loan terms will affect your ability to invest in growth opportunities and how they align with your long-term financial strategy.

Continually monitor your financial ratios and performance indicators to ensure that the refinancing is yielding the expected benefits. If necessary, make adjustments to your financial planning to account for the new debt structure. Effective refinancing should ultimately strengthen your business’s financial position, enabling more flexibility and resilience in the face of economic challenges.

If you’d like to discuss the option to refinance business assets, please contact a member of our team.