Whether you want to consolidate loans, reduce monthly payments, lower your interest rate, or take cash out, it may be time to consider refinancing your equipment. However, before you refinance your equipment you will want to have an idea of what it is worth. Most lenders focus on the overall condition and age of the equipment. Age is a big factor because many lenders put an age limit on various types of equipment, and they will not refinance it after the determined lifespan.
Before you refinance your existing equipment loan, it is best to determine the loan-to-value (LTV) ratio, DSCR, and add up all of the upfront costs that may be associated. These fees may include application. appraisal report, loan origination, recording, title & escrow, document preparation, environmental reports, and lender processing fees.
Lenders may require a loan-to-value (LTV) ratio of 80% and a DSCR of 1.25x or higher. Your DSCR can be calculated by dividing your Net Operating Income by your Debt Services. Lenders will also want to know the current value, age, and condition of the equipment.
Although the equipment may be used as collateral, lenders will still require a good credit rating, bank statements, personal tax returns, business tax returns, business registration documents, and proof of profitability for 2 out of the last 3 years of business.
• Be sure to have proof of profitability for at least 2 years.
• Finance the equipment for the same length of time of the equipment lifespan.
• Check your monthly payments with our Business Loan calculator.