Refinancing a light industrial workshop's loans means looking at the loan on the strata unit, the loans on the machines and the ute, and the overdraft that carries your materials, then choosing which to move, combine or leave. Each of them can change on rate, on term and on what secures it.
Is the CNC router, the computer-controlled cutting machine, due for replacing while the loan on it still has more than a year to run? Has the unit next door come up for sale, with a deposit you would rather not pull out of the business? Are builders paying their progress claims, the invoices for each stage of a job, well after the board and steel were bought? Is the house still security for the loan you took out on the unit seven years ago?
Ardent Capital Group can look at the unit, the machines, the ute and the overdraft together, and we would be glad to help you refinance them.
Why a workshop owner's loans come up for review
A trade business that owns its unit carries two kinds of debt. There is a long loan on the building, and there are shorter loans on the machines that do the work. They were taken out years apart, so their end dates do not line up.
A strata unit is one lot in a complex of units, each on its own title. The owners corporation is the body made up of every owner in the complex. It charges each owner levies for the shared driveway, roof and services.
Several things on a workshop's calendar can bring the loans up for a fresh look.
- The bank term on the unit is ending, or a review is due. Either one brings the rate and the term up for discussion. The lender uses that review to see how the business in the unit is trading, for example how quickly builders pay their progress claims. It may also ask about the owners corporation and its levies. Our guide covers getting ready for the bank’s scheduled review.
- A machine needs replacing. A newer CNC router, edgebander (the machine that seals the edges of cut panels) or laser cutter can arrive with finance offered at the point of sale, while the loan on the old machine is still running.
- The unit next door is listed. It adds floor space without moving the business.
- A special levy is raised. When the owners corporation needs more for capital works, the major repairs and upgrades to the complex, than its funds hold, it can raise a special levy. It is a one-off bill for each owner.
- The materials bill runs ahead of the income. Builders pay against progress claims, while sheet board, steel and hardware are bought up front.
Example: a joinery workshop's loans side by side
This workshop is illustrative. The owner runs a joinery business making kitchens and cabinetry for builders and homeowners. Seven years ago the owner bought the strata unit the business works from, on a 15-year bank loan, with the family home as extra security.
Since then, the business has financed an edgebander, a CNC router and a ute. Each is listed with its balance, its rate, the months it has to go and what the business account pays out for it every month.
| Debt | Balance | Rate | Months to go | Monthly repayment |
|---|---|---|---|---|
| Loan on the strata unit | $540k | 7.4% (assumed) | 96 | $7,470 |
| Equipment loan on the edgebander | $110k | 9.6% (assumed) | 36 | $3,529 |
| Equipment loan on the CNC router | $42k | 10.2% (assumed) | 20 | $2,292 |
| Vehicle loan on the ute | $36k | 8.8% (assumed) | 30 | $1,341 |
| Total | $728k | $14,632 |
The workshop owes $540k on the unit, at an assumed 7.4%, with 96 months to go, and repays $7,470 a month. All four loans together take $14,632 a month. As the loans on the CNC router, ute and edgebander finish over the next three years, that total steps down to the loan on the unit alone.
The business also has a $50k overdraft, $35k of it in use, costing about $306 a month in interest at an assumed 10.5%. An overdraft is a limit on the business account that can be drawn and repaid again and again. It stays outside every refinance option. The rates are placeholders picked to make the sums work, and no lender is offering them.
How a refinance changes the workshop's loans
When a workshop refinances, a new loan pays out one or more of the old ones and starts again on its own terms. What the new loan does to the workshop's monthly bill, and to its cost over the years, comes down to three settings.
- The rate. Over the 96 months left on the loan for the unit, a lower rate trims both the repayment and the total interest. Pricing depends on what backs the loan, the workshop's trading, and how the business and its directors have handled credit before.
- The term. The term is how long the loan runs. Adding months shrinks each repayment. Because the debt then sits on the books for longer, the workshop pays more interest in the end. That trade can still suit a workshop through a stretch it can see coming, such as the months between buying a new machine and the work it brings in.
- The security. Security is whatever the lender can turn to for its money if the repayments stop. Secured by a mortgage over property, a loan generally comes at a lower rate than a loan backed by the business or a machine alone. The property is then security for that debt.
All four of the workshop's loans are amortising: each one runs down to nil by the end of the term, unless it ends in a balloon, a lump sum left to the final repayment. Part of every repayment pays that month's interest, and the remainder chips away at what is owed. Since each month's interest is figured on what is still owing, the first repayments go mostly to interest.
Worked example: one month on the loan for the unit
Splitting a single repayment in two shows where the workshop's money goes. On the $540k owed on the unit at an assumed 7.4%, this month's interest is $3,330. The other $4,140 of the $7,470 repayment reduces what is owed. A year from now, the balance will be about $51,400 lower. If nothing changes, the loan on the unit still has about $177k of interest to run before it is cleared.
Refinancing each loan the workshop carries
Each of the workshop's loans paid for something different, so each one is looked at on its own before anything is combined.
The loan on the strata unit
The unit is the largest debt for this owner, and it holds most of the owner's equity. If the unit is worth more now than when it was bought, that difference is equity the owner may be able to draw on.
A refinance usually starts with a valuation, which the new lender can order from an independent valuer. Standard commercial property, which includes industrial units and workshops, can be geared up to 80% of that valuation, depending on the lender. That percentage is the LVR, short for loan-to-value ratio. For owner-occupied commercial property, the major banks set no published LVR and assess each application individually. Bank terms on commercial property commonly run 10 to 15 years, and non-bank terms 25 to 30.
Take an illustrative valuation. On a unit valued at $1M, 80% is $800k. Against the $540k owing, that leaves a gap of $260k. Whether any of it can be borrowed depends on the lender's valuation and on whether the business can meet the larger repayments.
A new loan on the unit can change the rate, lengthen or shorten the term, release equity, or let the home come off as security. If the loan on the unit has a fixed rate, leaving before the fixed period ends can mean a break cost, a fee for ending a fixed rate early. The more rates have fallen since the rate was fixed, the bigger it is. A written payout figure from the current lender shows it. The payout figure is the full sum that would close out the debt on the unit by a given day. Our page on refinancing a light industrial unit you own covers the property loan itself in more depth.
The strata records travel with the application. They show the levies, the balance of the capital works fund (called a sinking fund in some states) and any special levy that has been raised. Levies sit beside council rates and insurance as a cost of holding the unit.
When the unit next door comes up
For a workshop short of floor space, the lot next door means growing without moving the machines. Equity in the unit already owned can go toward the deposit and purchase costs for the second one. Both units can then secure the new borrowing, each on its own title. Whether to buy is the owner's decision, and we can set out the repayments on both units together.
The loans on the machines and the ute
The machines are what turn sheet board or steel into finished work, and they wear and date at their own pace. In a joinery shop that means the CNC router, the edgebander, the panel saw and the dust extraction. In a fabrication shop it is the MIG and TIG welders, the press brake, the guillotine and a laser or plasma cutter.
Machines like these can be financed with a chattel mortgage. With one, the workshop takes ownership of the machine straight away, and the lender takes a charge over it until the loan is repaid. Some of these contracts end in a balloon, which keeps the regular repayments lower until it falls due.
The contract for each machine may set an early payout charge for clearing it ahead of schedule. The finance company can give the exact figure in writing for each machine.
A machine's effective life is the number of years an asset can be used to produce income, taken from the ATO's determination or worked out by the business. It is a tax figure, not a promise of how long the equipment will run. The ATO's effective life determination lists joinery plant at 13 1/3 years under wood product manufacturing. Your accountant confirms which entry applies to each of your machines.
So a joinery machine can still be working after its loan is repaid. The reason to look again can be an upgrade instead, because a newer CNC router can cut faster or take on work the old one cannot. The payout on the old router and the loan for the new one belong in the same conversation, with the payout figure, the trade-in and the new loan side by side.
Moving an equipment loan into the property loan brings it onto that loan's rate, and it also stretches it over the property loan's term. A $42k balance due to finish in 20 months would then run for as long as the loan on the unit does.
The overdraft, progress claims and the ATO
A joinery or fabrication job is paid for in stages, while the materials for it are bought before the work starts. Builders pay those progress claims as the job moves along. Homeowners buying a kitchen commonly pay a deposit, then progress and final payments. In between, the business has paid for materials, wages and the power for its three-phase machines.
The overdraft bridges the time from the timber yard's invoice to the builder's payment. Converting the drawn balance into a term loan, which is repaid in fixed instalments, pays the overdraft back to nil. The workshop then has no overdraft to fall back on, unless a fresh limit is arranged alongside.
BAS is the business activity statement the business lodges for GST, the goods and services tax, and other taxes, and PAYG withholding is the tax taken out of staff pay. A payment plan with the ATO for either can be cleared by the new borrowing, where the lender agrees. The interest on business borrowing may be deductible for tax, which lowers the income the business is taxed on. Since 1 July 2025, the interest the ATO adds to tax paid late has not been deductible. Your accountant confirms how each one applies to the business.
Putting the workshop's loans together
With each loan looked at separately, the question turns to whether the property loan and the shorter loans belong together or apart.
Worked example: the $728k refinanced four ways
The table sets the joinery workshop's four loans against four ways of refinancing them. The starting point leaves the loans untouched. Each other option is measured against it, first on the monthly bill and then on the interest paid until the last repayment.
| Option | Repayment each month | Monthly difference | Interest until paid off | Interest difference |
|---|---|---|---|---|
| Leave all four loans alone Today | $14,632 | Starting point | $202k | Starting point |
| Move only the property loan to a lower rate, same 96 months | $14,497 | $135 less | $189k | $13k less |
| One loan on the unit for all four, over 96 months | $9,962 | $4,670 less | $228k | $26k more |
| One loan for all four, over 15 years | $6,584 | $8,048 less | $457k | $255k more |
| One loan for all four, over 25 years | $5,427 | $9,205 less | $900k | $698k more |
Illustrative and rounded. The rates exist only to drive the sums and are not quotes or current pricing. Left out of the sums: any new machine, valuation and establishment fees, break costs and early payout charges, and the overdraft.
One loan on the unit over 96 months cuts the repayment by $4,670 a month. Yet it adds $26k of interest, because the machine and ute balances now run for eight years.
The single non-bank loan for all four cuts the repayment by $9,205 a month and adds $698k of interest. The CNC router, edgebander and ute inside that loan would all be replaced long before it ends.
Repricing just the loan on the unit changes nothing else. It saves $13k of interest and lengthens nothing. Which suits the workshop depends on the builders' payment cycle, the next machine and the plans for the unit next door. We would gather the payout letter for each loan and set the choices out on repayment and total interest. None of these options is a quote, and none is an approval.
Security for the new loans
A workshop owner has several things a lender can take as security, and each one carries its own trade-off.
- The unit. A first mortgage over the strata unit secures the property loan, and it can secure the business debts as well, within the 80% band. A first mortgage is the one repaid first from the sale if the unit ever has to be sold.
- The machines. An equipment lender registers its security interest on the PPSR, the national register of security interests in personal property. It does not cover land, buildings or fixtures to land. Paying out an equipment loan leads to the registration's removal.
- The business. A general security agreement lets the lender look to all of the workshop's assets, including its machines, its stock of board and the invoices builders have yet to pay.
- Directors' guarantees. Each director signs to say they will meet the debt personally if the company falls short.
- The home. If the home already backs the loan on the unit, a refinance on the unit's current value can be the point at which it comes off, subject to the lender. The mortgage on the house is handled through our home loans for industrial business owners.
When the unit sits in a separate entity
Some owners hold the unit in a family trust and run the business through a company that pays it rent. The lender then works through each entity and each guarantor, including the rent paid between them. Where a co-director is leaving, a refinance can fund the payment to them. How the ownership changes is a matter for your accountant and lawyer, and the finance is built around what they settle.
Getting ready to refinance the workshop's loans
The workshop's year is shaped by its builders, its machines and its strata meetings, and each of them bears on when the paperwork comes together most easily.
Timing, and what to line up first
Some events in the year can lift the cost of refinancing or change the figures that go in with the application.
- A break cost or payout charge bigger than the saving. If the written figures show that, the timing can be revisited as the fixed rate or the equipment contract nears its end.
- A special levy in the pipeline. The levy notice and the owners corporation's meeting minutes show the amount and when it is due.
- BAS or tax returns still to lodge. Getting them lodged first means the application goes in with current figures.
What the accounts show for a business paid by builders
A workshop's income depends on who it works for and how they pay, and its accounts record both.
- Who pays the invoices. An aged debtors report, which lists each unpaid invoice by customer and by how long it has been outstanding, shows which builders and private clients the money comes from.
- Materials against income. Board, steel and hardware are the largest cost that moves with the work, and the accounts show how much of each job they take.
- Wages. A joinery shop's staff generally fall under the Joinery and Building Trades Award 2020, and a fabrication shop's under the award for manufacturing and associated industries. Each award lays down the lowest pay rates and conditions for that kind of work.
Paperwork for the application
The workshop's bookkeeping file, its strata papers and its finance contracts already hold nearly everything on the list.
- A payout letter from each lender, including break costs and early payout charges
- The strata levy notices, the latest owners corporation minutes and the capital works fund balance
- Lodged tax returns and financial statements for the past two years
- Recent BAS lodgements and the ATO account statement
- Business bank statements and an aged debtors report
- The equipment contracts, with any balloon amounts, and quotes for any new machine
- Each director's personal loan and card statements, and the home loan statement if the home is security
Your refinance questions, answered
My unit has gone up a fair bit since I bought it. Can that pay for a new CNC?
It can, subject to a new valuation and the lender. Released equity puts the machine on a longer, property-secured loan, and separate equipment finance is the other route to compare.
One of my machine contracts finishes with a balloon. What happens to it in a refinance?
The balloon can be cleared by new finance when it falls due, or the whole contract can be refinanced before then. The current lender's payout figure is the first number to get.
Do my strata levies count against what I can borrow?
They can. A lender can count them as a cost of holding the unit, alongside council rates and insurance.
Most of my work comes from one builder. Does that matter?
Contracts with that builder and an aged debtors report showing prompt payment set out how steady that work is.
Can the house come off the loan on the unit?
It can, where the lender agrees and the unit's value allows. A refinance secured by the unit alone can release the home.
I've got an ATO payment plan from a slow year. Can I still refinance?
A refinance is still possible, subject to the lender. The plan can be paid out within the new loan, and a statement of account showing the payments kept up goes with the application.
Can I refinance just the unit and leave the equipment loans alone?
That is possible, subject to the lender. The second option in the worked example moves the property loan by itself, and it trims interest without stretching the equipment loans.
My business partner wants out. Can a refinance pay them?
A refinance can fund the payment to a departing partner, subject to the lender. The terms of the exit are set by your accountant and lawyer, and the loan is arranged around them.
The supplier has offered finance on the new machine. Do I have to take it?
No. It can be compared with financing the machine inside the refinance, on rate, term and fees.
We're buying the unit next door. Should the refinance wait until then?
The two can be looked at together. Whatever the refinanced loans cost each month sits beside the repayments on the purchase, and equity used for one cannot be used again for the other.
Talking through your workshop's loans with us
Ardent Capital Group can help with the strata unit's loan, the purchase of the unit next door, the equipment and vehicle loans, and the equipment and working capital loans for manufacturers and fabricators that sit beside them. Drawing on a background in financial planning, the Ardent Capital Group team can map out how the new loans fit the workshop's plans and your household borrowing, and your accountant signs off the tax side. Whenever it suits you, bring the list of loans and we will work through it together.
