Sale and leaseback of equipment is a financial option available to businesses that is something…
The Balloon Payment (or Residual) is the final payment needed to finalise an equipment or motor vehicle finance contract.
Business owners and individuals often prefer to include a Balloon Payment in their finance contract to reduce their monthly repayments.
At the end of the finance contract, you have a number of options available. The one you choose will depend on what you intend to do with the asset.
The key is to plan and understand the implications of each alternative.
Balloon Payments - Key Questions
Balloon Payment - Sell the Equipment or Motor Vehicle
If the Equipment or Motor Vehicle is surplus to your needs, you may decide to repay the Balloon and then sell the asset to reimburse your cash flow.
(If you sell the asset for more than the outstanding amount, any surplus you retain is profit).
You may also decide to sell and then use the funds from the sale as a deposit on new equipment or motor vehicle.
(Depending on the asset, this may be better than using it as a trade-in)
Retain the Equipment or Motor Vehicle
If you are looking to refinance the Balloon Payment, it is important to have everything set up before your current facility expires. I can help you here – simply get in touch.
Upgrade the Equipment or Motor Vehicle
If you decide the cost of acquiring new equipment, or motor vehicle outweigh retention, then to improve your negotiation power, seek approval of finance before approaching suppliers.
Depending on the equipment, you may be able to trade in the existing asset to reduce the amount borrowed. But as stated above, you may find it better to sell the asset and use these funds as a deposit.
When seeking finance, it is important to:
As outlined, there are options available to deal with the Balloon Payment due at the end of the contract.
Which is best will be determined by your circumstances.
If you would like to learn more or obtain a quote for equipment or motor vehicle finance, don’t hesitate to give me a call.