Equipment Refinancing - What do a doctor, auto mechanic, independent commercial truck driver, and oral surgeon have in common?
With each of these professions, specialized equipment is needed in order to conduct business. When an entrepreneur, small business owner, or owner of a mid- to large-sized company finds themselves in a financial crunch and needs additional capital to cover business expenses, refinancing may provide the solution.
With refinancing, your existing equipment leases and loans are refinanced at a lower rate. Often, business owners extend the term as well, maximizing the monthly cash flow savings. Here's an example of a typical scenario:
Four years ago, an auto mechanic purchased diagnostic equipment, new car lifts, and precision pneumatic tools totaling $500,000. His monthly payment on the original loan contract totaled $10,000. After refinancing at today's lower interest rate, his new monthly payment is $3,000. With the $7,000 a month savings, he'll have the opportunity to:
Buy out a partner or purchase a competitor's business
Replenish cash after a catastrophe or significant loss
Meet all pending tax obligations
Use the working capital to pursue a new business opportunity
Typically, refinancing your equipment requires these conditions:
Minimum credit score of 635 (restaurant owners need a score of at least 650)
Loan or lease to value of 75-78%
Businesses must be owned for at least 1 year (2 years for restaurants)
No open tax liens and no bankruptcies for at least 5 years
As with most types of loans, the rates for an equipment refinance vary widely, so be sure to shop around for the best rate and terms to suit your business needs. While some lenders will finance all types of equipment, you may find that the rates are more favorable if you work with someone who specializes in your field, such as a heavy equipment lender, industrial equipment lender, or medical equipment lender.
Most importantly, do your research and be sure that a refinance is a sound business decision before entering into any agreements.
