When financing equipment, many businesses choose to include a balloon or residual payment option in their credit arrangements, such as a Chattel Mortgage, Commercial Hire Purchase (CHP), or Lease. This allows for lower monthly repayments and flexibility throughout the loan term. However, at the end of the term, the balloon payment is due. At this stage, businesses need to determine the best approach to manage this payment.
Options for Handling the Balloon Payment
Businesses have several options when it’s time to pay off the equipment finance balloon:
- Refinance the Balloon: This involves taking out a new credit facility to cover the balloon payment, allowing the business to keep the equipment without depleting cash reserves.
- Sell the Equipment: Use the proceeds from selling or trading in the machinery to pay off the balloon.
- Use Cash Reserves: Pay the balloon amount using available funds, although many prefer to retain cash reserves for other business needs.
Options to Consider
The most common refinancing option is a Chattel Mortgage, where the originally financed equipment is used as security against a new loan to pay out the balloon payment.
Maximising Tax Benefits
At PMG, we encourage you to consult with your accountant to determine if there are any potential tax advantages to refinancing the balloon payment
Preparing for Refinancing
It’s essential to plan ahead—about 1-2 months before the balloon payment is due—to explore the most suitable options. Contact your PMG Broker to obtain the exact amount due or reach out to us for tailored refinance quotes. By planning early, you can ensure a smooth transition and maintain business liquidity.
PMG Finance specialises in sourcing competitive refinance options to manage equipment finance balloons effectively. Get in touch with us to explore how we can help you retain your assets while optimizing your financial strategy.
If you’re interested in learning more about balloon payments, Contact us on 07 4639 1011. We are committed to helping Australian businesses thrive by providing tailored finance solutions that meet your unique business needs.
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DISCLAIMER: The above content is to provide general information and does not constitute financial, legal or other advice. This means that duties and requirements imposed on people who give financial advice do not apply to this content. For advice contact your accountant or legal advisor.