27 Jun Equipment Refi: Leverage the Equity of Your Assets

Your business is humming along — powered, in part, by the pricey equipment a lender financed for you a while back. It’s vital to your business and worth every penny you faithfully pay on that large loan every month. But the payment is a sizable sum, too. And now you’re looking for ways to save money and improve your cash flow. An equipment refi could very well be the answer.

Your refinancing options

There are a couple different ways to go when it comes to refinancing. The most common type of refinancing, rate-and-term, occurs when the original loan is paid off and replaced with a new loan.

Back when you first got your equipment loan, you agreed to certain conditions:

• Interest rate
• Payment amount
• Maturity date

With this equipment refi, those conditions will be revised. The interest rate might be lower. Or the amount of time you have for repayment – the loan’s term – might be longer. Or both.

Cash-out, another type of refinancing, is an option when the equity in the asset collateralizing the loan increases.

What can an equipment refi mean for a business?

More cash on hand – In paying down the debt on your current loan, you’ve built up equity in your equipment. A cash-out refinance lets you pull out money and put it to good use – as working capital, for instance, or to fund expansion. In some cases, you can borrow against up to 100% of the value of your equipment.

Lower interest, lower payments – With interest rates as low as they are today, there’s a good chance you’ll be able to find a loan with a better rate than the one you have now. And with a lower payment as a result, you’ll have extra money to work with each month.

Longer terms, smaller payments – Simple arithmetic says that payments spread out over a longer period of time will be smaller. And if a lower rate is also part of the new loan, monthly savings will be even greater.

Possible tax advantages, too

Commercial refinancing can be 100% tax deductible. And you may be able to offset all payments against your tax bill. When it comes to tax matters, though, it’s always best to check with your financial advisor.

Staying ahead of the game

The only time some business owners think about refinancing an equipment loan is when a balloon payment is coming due or they’re in danger of default. But that approach limits the opportunities that refinancing offers – in terms of significant savings and improved cash flow.

To take full financial advantage of the equipment you’ve invested in, a loan refi could give you the leverage and the savings that let you get ahead.

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