Refinancing loans is a frequent option to help business owners in need when profits are down, and cash flows are tight. Following the correct loan steps in a FINPACK Projection ensures the Term Debt Coverage Ratio and other repayment capacity measures are correct after including a refinance scenario in the software. This process can be used to refinance all or a portion of the loan in a FINPACK Projection.
Step 1: Paydown/Payoff the loan(s) to be refinanced.
Start by calculating the paydown/payoff amount(s) of the loan(s) that will be included in the refinance for the projection. This can be done using the Fixed-Principal Payment option in the Loan Calculator. Point your cursor to the P & I Payments cell for the loan you are wishing to refinance. Then, initiate the Loan Calculator. This quickly and easily allows you to calculate the payoff/paydown amount with interest. Once you’ve calculated the appropriate payment amount, use the Paste button to paste the payment into the projection. Repeat this as necessary for all loans being refinanced in the projection.
Step 2: Enter the Amount from Refinance in the Loan Payment detail.
A key component of refinancing a loan is entering the Amount from Refinance in the Loan Payment Detail. When you enter Loan Payment Detail, you will see the payment amount pasted from the Loan Calculator. Below the Total Payment Line is the ability to enter Amount from Refinance. Enter the amount to be refinanced there. (Enter this in the appropriate month in a monthly type projection). This amount may be the full loan paydown/payoff, including interest, or it may be the principal portion. This entry should reflect the amount being refinanced into a new loan.
* Note – Payments resulting from capital sales or loans forgiven are entered in this same manner, noting the source of the “non-normal” loan payment.
Step 3: Create the new loan in New Borrowings data entry.
Include the new loan for the refinance in New Borrowings data entry. This is done in the same manner as any other projected new borrowing in the plan. New borrowings are entered in New Borrowings data entry in a monthly type of projection. In an annual type of projection, new borrowings are entered in Loan Payments and Borrowings data entry.
Step 4: Include payments on the new loan for the projection period.
Anticipated payments on the new loan should be included in the cash flow projection. Again, any loan payments on the new loan for this refinance situation are included like any other loan payments. The Loan Calculator can be utilized to help calculate amortized and fixed principal payments for the projection period. No additional information is needed related to the payment on the new loan. If the payment amount for this projection period is different than the payments for a “typical year” the Estimated principal due next year can be included in loan payment detailed entry. This feature adjusts the projected ending balance sheet, to include the correct current maturities of long term debt. Therefore, the liquidity and solvency details on the projected ending balance sheet will be correct.
Step 5: Review Term Debt Coverage calculations.
Completing these steps will lead to the proper adjustments in the term debt coverage calculation. As seen below, the total term debt payments from the projection are included in the calculation. Then, there is an adjustment for the Payments from capital sales and refinance. This backs out the payments related to the refinance scenario included in the projection, thus ensuring the Normal term debt payments are included in the term debt coverage calculation for the projection.
Following these steps will ensure loan refinancing is properly handled in a FINPACK Projection. These steps will lead to the correct term debt coverage calculation in the projection, reflecting the proper analysis of the projection.
Pauline Van Nurden joined the FINPACK Team as an Economist in 2017.
Prior to joining the FINPACK Team, she worked as a lender. This provides her valuable industry experience and knowledge in her work with FINAPCK. Pauline holds a Master’s Degree in Agricultural Education and Bachelor’s Degree in Applied Economics, both from the University of Minnesota.