From an equity or collateral standpoint, lenders are actually better off lending against an existing loan. Eventually, the loan reaches a tipping or equity positive point. When financing a new piece of equipment, the lender probably still has a negative equity position, based on the percentages noted above. By comparison, in term loans that are two to four years old, that equity has become positive, making it a better deal for the lender to refinance these loans, provided that they can offer an attractive term and rate.
All in all, refinancing is something that every printer should look at for its potentially positive impact on the balance sheet. And regardless of whether a borrower is financing or refinancing, cleaning up the balance sheet and moving current debt into the long term will make for more favorable operating ratios.
Part 2 of this article will address asset-based lending options that provide workable lines of credit secured by receivables and inventory.
Stu’s View is contributed by Stuart Margolis, CPA and Partner of MargolisBecker LLC to provide information that helps firms operate profitably. More information can be found at www.margolisbecker.com.