Acquiring new equipment may significantly impact a company's cash flow. To expand and meet the increasing demands, businesses can leverage equipment financing. In this article, we will explore equipment financing by checking the eligibility criteria, features, and other details to help you better understand this option.
Equipment financing is a service that companies can utilise to get necessary equipment for business operations. Things like manufacturing machines, transport vehicles, computers, and office furniture can be obtained with equipment financing, amongst other equipment.
Before applying for equipment financing, it is important to know whether this type of financial assistance matches your requirements. To help you decide, we have listed the features of equipment financing below:
Every lender has a different loan quantity that they can offer. A borrower's previous credit behaviour and the price tag of the equipment helps the lender determine the loan's size. It's common for used equipment to be financed up to 75% of its value. For brand-new equipment, lenders often cover up to 90% of the cost.
There is no need for further security because the purchased equipment has been pledged to the lender. But the financial institution may require additional security for larger loans.
The loan amount determines the payback duration, which often varies from three to seven years. There is a six-month moratorium in addition.
The majority of equipment loans typically have fixed interest rates, often between 8% and 30%, as well as fixed terms that guarantee consistent monthly payments.
Equipment loans are available in several types to cover different business requirements. Some of the common types of equipment loans are:
This type of loan is for construction companies, enabling them to acquire the tools and machines necessary for building projects.
Businesses engaged in manufacturing can utilise this loan to purchase the machinery needed for their production processes.
Individuals in the corporate aviation industry can seek this loan to cover expenses related to airport and in-flight equipment.
This financing, which is specifically designed for companies in the automotive sector, helps with a number of tasks, such as producing components and assembling vehicles together.
Businesses operating from offices can access this loan to procure essential tech equipment such as computers, servers, and projectors.
Companies requiring electronic gadgets or appliances can benefit from this loan to meet their equipment needs.
Geared towards healthcare-related businesses, this loan supports the acquisition of equipment and supplies essential for smooth operations.
You must be 21 to 65 years old to apply for equipment loans. The business needs to have been running for the last two or sometimes even three years. The average turnover of the is required to be Rs. 10 Lakh. Apart from this, some of the important documents required for equipment financing include:
Both the equipment leasing and equipment financing give businesses access to the equipment needed for their operations. However, equipment leasing works as a rental agreement with a lower month-to-month cost. Also, it doesn’t require businesses to pay a down payment. While as, equipment financing gives the ownership of purchased equipment to the borrower once the loan is paid off. It comes with more month-on-month cost, but overall less payment.
Equipment loans may not be suitable for every business. There are better alternatives like a term loan that allows you to qualify for favourable rates if your credit score is great. Some other options include SBA loans and lines of credit. Also, based on your business setup, you can choose leasing instead of getting equipment financing.
To sum it up, equipment financing proves beneficial for businesses requiring the acquisition of machinery and other equipment to sustain their operations. It is advisable to thoroughly examine the attributes of this funding option for a comprehensive understanding. Also, several alternatives are available, so explore all the options before making your ultimate choice.