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How to refinance your equipment

Many business owners are unfamiliar with where to begin when it comes to equipment refinancing. We’ll go through the advantages of refinancing and how to go about it in this article. We’ll look at several types of refinancing, as well as some things to bear in mind while doing so. Finally, we’ll answer some common questions regarding equipment refinancing.

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What is refinancing, and how does it work?

The process of refinancing equipment is the process of obtaining a lease with the following goals: 

  • to pay off an existing loan.
  • To get cash-flow, taking a new longer term.
  • To finance the purchase/balance at the end of the term.

The benefits of refinancing your equipment loans

Refinance equipment lease can provide several benefits, including:

  • Better financing conditions: this can save you money in the long run, as you’ll get more benefits through a lease refinancing, than what you had with your loan.
  • A longer repayment period: this gives you more time to pay off your lease, which can be helpful if you are struggling to make the monthly payments.
  • More flexibility: with lease, you may have more flexibility in terms of the amount of money you can borrow and the repayment schedule.
  • Reduces monthly payments: this can free up money each month that you can put towards other expenses. Besides, it consolidates existing loans into one loan: this makes it easier to keep track of your monthly payments and can save you money on fees. It is an advantage to combine multiple loans or business loans into one more manageable monthly payment.

How to refinance equipment – the process involved

When refinancing equipment, there are a few things you need to keep in mind. 

  1. Determine your equipment’s current market value. You can do this by contacting an equipment appraiser or visiting online equipment marketplaces. This will give you an idea of the equipment’s current market value.
  2. Find a lender that offers equipment refinancing. Not all lenders offer this type of financing, so you may need to do some research. Once you have found a lender, you have to apply. The application will require detailed information about the equipment being refinanced, including its current market value and the terms of the existing loan.
  3. Choose the right lender for you. Each lender has different conditions. Some look at the market value of the equipment, while others look at the liquidation value. It is important to pick a lender that gives you the best return on your investment.

Keep in mind that the lender will also want to know the reason for the refinance. This is because different lenders offer different conditions and terms based on the purpose of the refinance. For example, if you are refinancing to obtain a lower interest rate, the lender will want to know that the equipment will be used for business purposes.

Different types of refinancing

These are the main types of equipment refinancing:

  • sale and lease back, when there is 100% refinancing of a purchase made within the last 12 months.  For example, at Finco if you pay for a piece of equipment in the last 12 months, we can refund/refinance it at 100% upon proof of payment. 
  • refinancing, 50 to 70% of market value if the equipment was purchased more than a year ago and it’s “clear of bond” therefore all paid.
  • secured, when the equipment being refinanced is used as collateral for the new loan or lease.  This is the most common type of refinancing and usually offers the best conditions;
  • unsecured, when the equipment being refinanced is not used as collateral. This type of refinancing is riskier for the lender, so it often has a higher interest rate;
  • lease, when the equipment being refinanced is leased.  This type of refinancing does not involve taking on a new loan, but rather renegotiating the loan terms of the lease agreement.

Things you should keep in mind when refinancing

Refinancing equipment loans is a great way to get the equipment you need at an affordable price. However, there are many aspects of refinancing equipment that people often overlook or don’t consider. Here are some things to keep in mind when you’re refinancing your equipment:

  • Make sure you know how much money you require.
  • Make sure that the equipment loan or lease has been approved by the equipment lender before you sign anything.
  • Make sure to get a loan or lease that has good conditions based on your business strategy.
  • Be sure to compare different equipment refinancing options before you choose one. Take a close look at the additional obligations, conditions, and documentation fees.
  • Take your time and read carefully the fine print of any agreement before you sign it.
  • Keep in mind that refinancing is not always the best option for everyone. You should carefully consider all of your options before you decide to refinance your equipment.

If you take the time to consider all of these factors, you will be able to find the equipment refinancing option that is best for you and your business.

How to get the most out of your refinanced equipment

When refinancing equipment, it is important to make sure you get the most bang for your buck. Here are a few ways to make sure you get the most out of your refinanced equipment.

1. Make a plan

Just because you have refinanced doesn’t mean you can go crazy and start spending recklessly. You still need to have a plan for your equipment and how you will use it. Refinancing can give you a lower monthly payment, but it is still critical to be smart about your spending.

2. Know your equipment

It is essential to know your equipment inside and out before refinancing. This way, you can be sure you are getting the best deal possible. You should also be aware of any potential problems that could arise with your equipment, so you can be prepared for them.

3. Shop around

Don’t just go with the first company you find. Shopping around can help you get the best conditions possible on your refinancing. At Finco we know we offer a unique value proposition for our clients. If you would like to receive customized information on your equipment refinancing project, please contact us.

4. Be prepared to negotiate

Don’t be afraid to negotiate with the company you are refinancing with. If you have a good relationship with the company, they may be willing to work with you to get you the best possible payments.

5. Read the fine print

Make sure you understand all the terms and conditions of your refinancing before signing anything. This way, you won’t be surprised by any hidden fees or penalties.

Conclusion

There are many major benefits to refinancing your equipment. For one, you can save money at your current interest rates and pay off your equipment sooner. This could free up cash flow for your business and help you invest in other areas. Additionally, if your equipment is aging or becoming obsolete, refinancing could give you the funds to replace it.

There are a few things you should keep in mind when refinancing equipment. First, the process and business operations can be complex, so make sure you have the resources in place to complete it. Second, there may be penalties for prepaying for your equipment loan, so be sure to check with your lender before doing so.

What is a balloon payment?

A balloon payment is a residual/purchase option, usually a large payment, that is made at the end of a loan agreement, after smaller payments have been made for a certain period.

Balloon payments refinancing is a process where you pay off your original loan with a new one that has a larger balloon payment. This can be beneficial if you need to free up cash flow or want to lower your monthly loan amount payments.

Balloon payments are also known as a lump-sum payment.

What is cash flow?

It is the movement of cash in and out of a business. It measures the increase or decrease in cash available to a company. This can be measured by taking into account all the sources and uses of cash within a company. The goal of cash flow management is to ensure that the company has enough cash available to meet its short-term and long-term obligations. Improving cash flow is a benefit of refinancing equipment.

What is equipment equity ?

Equity in the equipment is the value of the equipment after all liabilities associated with that equipment have been paid. It is calculated as the net book value of the equipment minus the outstanding balance on any loans or leases associated with that equipment. This value can be used as collateral for a loan or to negotiate a better interest rate on a loan.

When you’re refinancing equipment, you’ll need to have enough equity in the equipment to qualify. This means that you’ll need to have a certain amount of equity in the equipment you’re refinancing compared to the amount you’re borrowing. The higher the equity, the more likely you are to be approved for a refinancing loan or lease.