The end of one financial year and the start of the next can be an exceptionally busy time for most business owners and operators. You could be engaged in your own EOFY sales to generate additional income and move stock. Most will be focussed on tax issues to ensure all boxes are ticked and affairs in order before 30 June. Some will be seeking a discount at the EOFY sale events for motor vehicles and equipment. And this time of year often coincides with school holidays which can place additional demands on-time schedules.
But amidst all that you have to do, it is also an appropriate time to take time to reflect on how you could set up your business for improved performance in the new financial year. Consider what tweaks you can make here and there to realise savings and generate additional income.
One area worth taking a close look at is in regard to existing business loans and finance contracts. Many business finance deals can be established for quite long loan terms, up to 7 years for many. Over the past few years, in fact, the past 18 months even, the Reserve Bank of Australia has cut the cash rate on several occasions. The current official cash rate is at a historic low level. These low-interest rates have flowed through into the lending market.
The interest rate you are currently paying on existing loans may be significantly higher than what is currently available. Possibly you took out finance when you were starting up your business and did not have all the documents the lender requested and subsequently you have a low doc business loan or no doc finance. Now after several years of operation, you will presumably have accrued the necessary financials which may give rise to a relaxation of any special conditions attached to your loans. Our business loan interest rate tool can provide you with the cheapest lending rates available.
If you have a bad credit loan and have managed to improve your credit rating over the first years of your loan, you may be eligible for a better interest rate loan.
In general, your business operating conditions may have changed – for the better or not so much better. Your current finance deals may no longer work with your current cash flow and where you see your business going over the coming year(s).
All these scenarios can give rise to consider refinancing or restructuring existing loans. It may also be helpful to utilise our business loan calculator to make estimates on repayment options.
What is involved in Business refinancing?
Refinancing or restructuring finance can sound somewhat daunting to some people. But it is really only the process of applying for new loans to replace current loans. The process is essentially the same as when you apply for initial finance but with some additional factors to consider.
- As refinancing essentially means ending an existing loan prior to the fixed loan term, fees will be applied by the lender. Known as break fees, these charges vary with commercial finance deals depending on the finance contract and individual lender requirements.
- Any break fees and penalties can be incorporated into the amount of the loan for the refinanced deal.
- In addition to paying out the current loan, the standard loan establishment charges would apply to acquiring the refinanced deal.
- A refinanced loan can be with the same or a different financial product to the loan it is replacing. Businesses can elect for Leasing to replace a Chattel Mortgage or for Chattel Mortgage to refinance a Rent to Own deal.
- The interest rate varies across the selection of commercial finance facilities and opting for a loan product that attracts a lower interest rate may significantly reduce monthly repayments and pressures on cash flow.
- If the equipment being refinanced was purchased as new goods it would have attracted loan terms and conditions associated with new goods. As the refinancing is partway through a loan term, the goods would now no longer be considered as ‘new’. The age and condition are taken into consideration by lenders when assessing applications. This may impact the offer made.
- Any savings to be realised by say getting a cheap interest rate business loan should be considered in context to the costs involved in the refinancing process. Once a refinancing offer is received, the decision to proceed is up to the business owner. The broad financial objectives of the business, possibly including long-term goals should be considered. Consultation with an accountant or financial advisor may be recommended.
- Refinancing does not have to be through the same bank or lender as the loan it is replacing. We have connections with many banks and lenders and the cheapest offer would be sourced.
- Engaging a broker to handle refinancing deals is highly desirable as they have specialist expertise, lender accreditations and skills to source and structure cost-effective refinancing and restructuring deals.
- There is no minimum or maximum thresholds for refinancing loans. Though refinancing smaller loans or loans with only a short period to run, may not be cost-effective.
- Refinancing may involve rolling multiple loans into one finance deal to streamline business outgoings.
- Balloons and residuals on loans approaching the end of the term can be refinanced.
With the uncertainties of coronavirus a very real prospect in Australia and global issues impacting different sectors of the economy, businesses can be smart to assess their finances and loans moving forward. The new financial year is an ideal time for reviewing loans and finance and our team can assist you with the process.
Contact 1300 000 033 to discuss how we can assist your business with your refinancing requirements.
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.