REFINANCING

Refinancing helps you uncover hidden equity in your assets. Refinancing provides a cash infusion by unlocking the equity a business has, in their machinery and equipment, and converting that equity into cash. These funds can be used for varied purposes including working capital. Also consolidation of existing equipment loans into one transaction with one monthly payment. These funds can also be used to  buy back capital stock or to buy out a partner. Refinancing can help you improve cash flow and lower financing costs. In addition, the current equipment value may exceed your remaining debt, allowing you to increase the amount you borrow. Companies use term loans when ownership of the asset is an important consideration. Other companies may turn to a sale-leaseback arrangement to accomplish these same types of goals but with the added benefits of a lease. These benefits can include substantial tax savings, improved-liquidity, working capital ratios, return on capital and return on assets.

 

REFINANCING TO REPLACE RESTRICTIVE LENDERS

There are situations when a company is poised for growth and is held back by a reluctant financial partner; most often but not exclusively a conservative bank unwilling to bear the risks of growth. Banks are often in the position of curbing growth if only because they generally do not price their loans to account for the risks associated with change. This occurs particularly where the company will require both additional senior debt from the institution in question as well as junior capital. This complicates the company's balance sheet and introduces a new party into the lending relationship. As a result, the bank may elect to exit the loan.


The most important insight an entrepreneur can take into a refinancing situation is the fact that the same amount of senior debt can look very different depending on the other elements of the balance-sheet.