By the Loan Phone team Reviewed by Anthony Moncada, M.App.Fin, Cert IV Finance & Mortgage Broking
Quick Answer
Equipment refinancing allows Australian businesses to restructure existing equipment loans for better rates, lower repayments, or to access equity built up in financed assets. Refinancing may reduce monthly repayments by 15-30% or release working capital from fully-owned equipment. Common reasons include securing better interest rates (particularly for improved business circumstances), managing balloon payments, consolidating multiple equipment loans, or freeing up cash flow during challenging trading periods. Modern comparison platforms can assess refinancing opportunities efficiently, with settlements possible within days for straightforward applications (subject to lender and circumstances).
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When to Consider Equipment Refinancing
Equipment refinancing makes sense in several circumstances beyond simply chasing lower interest rates.
- Better rates available: If your business credit profile has improved significantly since the original loan, refinancing may secure substantially lower rates. Businesses that have grown from startup to established status often qualify for considerably better terms on refinancing.
- Balloon payment approaching: Rather than finding a lump sum when your balloon payment falls due, refinancing the residual amount spreads the cost over a new loan term, easing cash flow pressure.
- Multiple equipment loans: Consolidating several equipment loans into one facility simplifies administration, may reduce total monthly repayments, and often results in better overall rates through a single larger loan.
- Cash flow pressure: During challenging trading periods, refinancing to extend loan terms reduces monthly repayment obligations, freeing up working capital for critical business needs like payroll or inventory.
- Accessing equipment equity: If you’ve built substantial equity in equipment (current value exceeds outstanding loan balance), refinancing can release this equity as working capital for business growth or operations.
How Equipment Refinancing Works
The refinancing process mirrors standard equipment loan applications but focuses on restructuring existing debt rather than new equipment purchases.
You obtain a payout figure from your current lender showing the total amount owing including any early exit fees. This payout figure is typically valid for 30 days and includes the outstanding principal, accrued interest, and any applicable charges.
A new lender provides funds to pay out your existing loan completely, with the equipment serving as security for the new facility. The new loan may be structured with different terms, rates, or repayment schedules better suited to your current circumstances.
Your existing lender releases their registered security interest over the equipment, which the new lender then registers in their name via the PPSR. This typically happens seamlessly as part of settlement without requiring your direct involvement.
Types of Equipment Refinancing
- Rate reduction refinancing: Securing a new loan at lower interest rates than your existing facility, reducing total interest costs over the remaining term. Most beneficial when rates have dropped significantly or your business credit profile has improved substantially.
- Balloon refinancing: Refinancing the balloon payment due at term end, spreading the lump sum over a new loan term. This common approach avoids large one-time cash outflows that might strain working capital.
- Equity release refinancing: Borrowing more than your existing loan balance to access equipment equity. For example, equipment worth $100,000 with a $40,000 loan balance might refinance for $75,000, releasing $35,000 in working capital (less fees and charges).
- Debt consolidation refinancing: Combining multiple equipment loans into a single facility, simplifying administration and potentially reducing total monthly repayments. Particularly valuable for businesses managing loans across multiple lenders with varying payment dates and terms.
See our comprehensive guide on business equipment loans for more financing options.
Costs and Considerations
Equipment refinancing involves several costs beyond new interest rates:
- Exit fees: Your existing lender may charge early termination fees, particularly for fixed-rate loans. These can be substantial—thousands of dollars for large loans—and must be factored into refinancing cost-benefit calculations.
- New establishment fees: The refinancing lender typically charges application and establishment fees similar to a new loan, usually $300-$1,000+ depending on loan size.
- Valuation costs: Older or used equipment may require independent valuations, typically costing $200-$500, to determine current market value for the refinance amount.
- Potential higher rates: If your original loan was secured at historically low rates, current market rates might be higher despite improved business circumstances. Calculate total costs carefully.
- Extended loan terms: While extending loan terms reduces monthly repayments, it increases total interest paid over the life of the loan. Balance immediate cash flow relief against long-term costs.
Eligibility for Refinancing
Refinancing applications are assessed similarly to new equipment loans:
- Demonstrated repayment history: Your performance on the existing loan significantly impacts refinancing approval. Consistent on-time payments demonstrate creditworthiness and often result in better terms.
- Current business trading: Lenders assess your current financial position, requiring recent financial statements, BAS, and bank statements showing business viability and repayment capacity.
- Equipment condition and value: The equipment must retain sufficient value to secure the new loan. Older or heavily used equipment may not support refinancing or may limit loan amounts.
- Clear title: The equipment title must be clear of any issues. Outstanding debts or disputes regarding ownership complicate or prevent refinancing.
Most traditional lenders require minimum 12 months trading history for refinancing, though specialist lenders may consider shorter periods with strong applications.
When Refinancing May Not Be Suitable
- Early in loan term: Refinancing very early often means limited equity built up, while early exit fees may be substantial, making refinancing uneconomical.
- Minimal rate improvement: If the rate difference is less than 1-2% and significant exit fees apply, refinancing costs may exceed savings.
- Equipment near end of useful life: Refinancing equipment approaching obsolescence or major maintenance requirements provides limited value and may not be approved by lenders.
- Weak business position: If your business circumstances have deteriorated since the original loan, refinancing may attract worse terms or be declined entirely.
For businesses looking at new equipment purchases instead of refinancing, explore our guide on equipment finance Australia.
Frequently Asked Questions
How much can refinancing save? Savings depend on rate differences, loan amounts, and remaining terms. A 2% rate reduction on a $100,000 loan with 3 years remaining might save $3,000-$4,000 over the remaining term. However, exit fees and new establishment costs reduce net savings. Calculate total costs including all fees before proceeding.
Can I refinance equipment I own outright? Yes, refinancing fully-owned equipment releases equity as working capital. This “equity release” refinancing uses your equipment as security for a new loan, providing cash for business needs while taking on debt secured by the asset.
Will refinancing affect my credit score? Refinancing applications involve credit checks that may temporarily impact your credit score. However, successfully refinancing and maintaining good repayment history on the new loan ultimately supports positive credit building.
Speak with Specialists
Need expert guidance on your equipment refinancing application? Email: loans@loanphone.com.au Website: www.loanphone.com.au
Related Resources
Explore these related guides for business owners and ABN holders:
Disclaimer: This article provides general information only and should not be relied upon as financial or tax advice. Rates, terms, and eligibility vary by lender and individual circumstances. Tax benefits are subject to your specific business structure and circumstances. Always seek independent professional advice from a qualified accountant and financial adviser before making financing decisions.
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Last updated: 2025-11-09