Refinancing Machinery Loans: When Does It Make Sense?
Refinancing machinery loans may be worth reviewing when an existing equipment finance structure no longer suits the current position of the business.
Cash flow may have changed, a balloon payment may be approaching, several machinery loans may have accumulated or the business may simply have stronger finance options available than when the original facility was established.
Refinancing does not automatically mean paying less overall. The objective should be to determine whether a different structure creates a better commercial fit for the business today.
Looking for broader machinery finance options?
This guide focuses specifically on refinancing existing machinery and equipment debt. For finance options across new, used and specialised machinery, visit our main Machinery Finance Australia hub.
Why Do Businesses Refinance Machinery Loans?
Machinery loans are generally structured around the business, asset and lending environment at the time the equipment is purchased.
Over the life of the loan, the circumstances of the business can change considerably.
Cash Flow Has Changed
Revenue, margins or working-capital requirements may now be different from when the original loan was established.
A Balloon Is Approaching
A large end-of-term payment may create a significant short-term cash requirement if it has not been planned for.
The Business Has Improved
Stronger financial performance, more trading history or improved credit may create access to lender options that were not previously available.
Multiple Loans Have Accumulated
Businesses that acquire machinery over time may end up managing several separate finance facilities with different terms and repayment dates.
Can Refinancing Machinery Improve Cash Flow?
Potentially. A different finance structure may reduce regular repayments by changing the remaining term, repayment profile or balloon arrangement.
This can be useful where a business needs more working capital for wages, materials, inventory or expansion.
Lower monthly repayments do not necessarily mean lower total cost.
Extending the finance term may reduce the regular repayment, but it can also increase the period over which interest is paid. The monthly cash-flow benefit should therefore be considered alongside the total cost of the new structure.
Refinancing an Upcoming Machinery Balloon Payment
Many commercial machinery facilities include a balloon or residual amount payable at the end of the finance term.
A balloon can help reduce regular repayments during the term, but it leaves a larger amount to be dealt with later.
Where the business intends to keep the machinery but does not want to pay the balloon from cash reserves, refinancing the remaining balance may be one option to consider.
It is generally better to review an upcoming balloon before the due date rather than waiting until the business is facing an immediate repayment requirement.
Can Refinancing Lead to a Better Interest Rate?
Potentially, but a lower rate should not be assumed.
The interest rate available on a new facility can depend on the current lender market, the age and value of the machinery, remaining debt, business performance and credit profile.
A business may now qualify for a different lender or structure than it did when the machinery was first purchased. However, rate is only one part of the comparison.
- Interest rate
- Remaining loan balance
- New loan term
- Balloon or residual
- Monthly repayment
- Total interest
- Early payout or discharge costs
- New lender fees
Consolidating Machinery & Equipment Finance
Growing businesses may purchase equipment at different times and from different lenders, creating several finance facilities with separate repayments and maturity dates.
Depending on the circumstances, refinancing may provide an opportunity to review whether some existing equipment debt can be restructured or consolidated.
Simpler Administration
Fewer facilities may make equipment debt easier for the business to monitor and manage.
Repayment Alignment
Different loan maturities and repayment profiles may be reviewed as part of a broader funding strategy.
Cash-Flow Review
The business can assess whether the combined repayment burden still reflects its current operating position.
Broader Debt Strategy
In some circumstances, equipment refinancing may form part of a broader review of business debt.
Have Existing Machinery Finance You Want Reviewed?
Send us the machinery details, current lender, approximate balance and repayment structure. We can help assess whether refinancing may be worth considering.
When Might Refinancing Machinery Finance Make Sense?
Refinancing is not something every business needs to do. It is most useful when there is a clear reason for changing the existing facility.
Repayments Are Too Restrictive
The existing repayment profile may be putting unnecessary pressure on working capital.
A Balloon Is Due
The business plans to retain the machine but wants to review how the remaining balance will be funded.
Finance No Longer Matches the Asset
The equipment may have a longer useful life than the remaining finance structure suggests.
Business Conditions Have Changed
Growth, stronger performance, new contracts or a different cash-flow position may justify reviewing the original arrangement.
When Might Refinancing Not Make Sense?
Refinancing simply because a lower monthly repayment is available can be misleading.
Before replacing an existing facility, the business should consider whether the benefit of the new structure outweighs the costs and whether the machinery will remain useful for the proposed new term.
- The existing loan is already close to being repaid
- Early payout costs materially reduce the benefit
- The new loan extends well beyond the machinery’s useful life
- The lower repayment substantially increases total interest
- The machinery itself may soon need replacing
- The business is refinancing without addressing the underlying cash-flow issue
Can Older Machinery Loans Be Refinanced?
Potentially. Machinery age can become more important when refinancing because the lender is assessing an asset that has already been in use.
Lenders may consider the type of machinery, current market value, condition, remaining useful life and the amount still owing against it.
Different lenders can have different asset-age policies, which is one reason an existing lender’s position may not be representative of the entire commercial finance market.
If the machinery is also being under-utilised, our guide to the Hidden Costs of Idle Machinery explains how utilisation and finance commitments can affect business cash flow.
Can Refinancing Release Equity From Machinery?
In some circumstances, a business may own machinery that is worth more than the amount still owing against it.
Depending on the asset, lender and business position, refinancing may potentially be used to access part of that equity for broader business purposes.
This is not available in every transaction. Asset value, debt position, business performance and lender policy all matter.
Equity in machinery is still business capital.
Where commercially appropriate, reviewing existing equipment may help a business understand whether capital tied up in assets could play a role in its broader funding strategy.
Refinancing Manufacturing & Industrial Machinery
Manufacturing businesses often carry significant amounts of capital equipment, including CNC machinery, fabrication equipment, production lines and other specialised assets.
As production requirements change, existing finance may need to be reviewed alongside replacement machinery, expansion or additional working-capital requirements.
Refinancing can therefore be part of a wider equipment strategy rather than an isolated attempt to reduce one repayment.
What Should You Calculate Before Refinancing?
A refinance decision should compare the current facility with the proposed replacement on more than the monthly repayment alone.
Current Position
Confirm the payout figure, remaining term, repayment and upcoming balloon on the existing facility.
New Structure
Compare the proposed term, repayment, rate, fees and any new balloon or residual.
Total Cost
Consider the expected total cost of the new finance rather than focusing only on the monthly saving.
You can also use our finance calculator to explore how different loan amounts, terms and rates may affect repayments.
How Woodward Finance Helps Review Machinery Loans
Woodward Finance helps Australian businesses review existing machinery and equipment finance and consider whether another commercial lender or structure may better suit the current business.
With access to 60+ commercial lenders, we can consider different approaches to asset age, loan structure, documentation and industry rather than relying on the policy of one lender.
Depending on the circumstances, this may include reviewing balloon payments, finance terms, equipment debt consolidation, replacement machinery or potential equity release.
For broader machinery funding options, visit our main Machinery Finance Australia page.
Explore More Machinery Finance Resources
This article forms part of our machinery finance resource centre. Explore the main hub or continue with the other specialist guides.
Frequently Asked Questions About Refinancing Machinery Loans
What does refinancing a machinery loan mean?
Refinancing generally involves replacing an existing machinery or equipment finance facility with a new loan or finance structure.
The new arrangement may have a different lender, term, repayment profile, interest rate or balloon payment.
Can machinery loans be refinanced?
Potentially. Machinery loans may be refinanced subject to lender criteria, the age and value of the equipment, the remaining loan balance and the position of the business.
When should a business consider refinancing machinery?
It may be worth reviewing when repayments are putting pressure on cash flow, a balloon is approaching, the business has improved financially, several equipment facilities have accumulated or the current structure no longer suits the business.
Can refinancing reduce machinery loan repayments?
Potentially. A longer term or different repayment structure may reduce the regular repayment.
However, reducing the monthly repayment can increase the total period over which interest is paid, so the full cost of the new structure should be compared.
Can I refinance a machinery balloon payment?
Potentially. If a balloon is due and the business plans to retain the machinery, refinancing the remaining balance may be one option.
The machinery, payout figure, asset value and business position will generally form part of lender assessment.
Can multiple equipment loans be consolidated?
In some circumstances, multiple machinery or equipment facilities may be able to be reviewed together.
Whether consolidation is appropriate will depend on payout costs, asset values, existing loan structures and lender criteria.
Can older machinery be refinanced?
Potentially. Different commercial lenders have different asset-age policies.
Lenders may consider the equipment’s age, condition, market value, remaining useful life and amount owing.
Can refinancing machinery release business cash?
In some circumstances, a business may be able to access equity held in machinery where the asset value exceeds the amount owing.
Availability depends on the asset, lender, valuation, debt position and financial strength of the business.
Does refinancing machinery always save money?
No. Refinancing can improve the structure or reduce regular repayments without necessarily reducing the total cost of finance.
Businesses should compare rates, terms, payout costs, new fees, balloon amounts and total interest before deciding whether the new arrangement is worthwhile.
Where can I find broader machinery finance options?
Visit our main Machinery Finance Australia hub for information about new and used machinery, low-doc finance, lender assessment and commercial machinery funding structures.
Is It Time to Review Your Machinery Loan?
If a balloon is approaching, repayments no longer suit your cash flow or you have several equipment facilities to manage, tell us about the machinery and current finance. Woodward Finance can help you explore potential refinance options across our commercial lender panel.
Review My Machinery FinanceFinance is subject to lender eligibility, credit criteria and approval. Refinancing may extend the loan term or increase total finance costs. Terms, conditions and fees may apply.
Could Your Machinery Finance Be Working Better?
Access funding solutions through our panel of 60+ lenders and explore options to improve business cash flow.
