It is a given, that for any business to flourish, types of equipment are necessary. It can be cooking appliances in a restaurant, or computers in a cyber cafe. Some businesses can readily afford the cost while some struggle to amass the capital. In such situations, equipment financing steps in as a blessing.
What Is Equipment Financing?
The term itself is self-explanatory. Equipment financing refers to the loan acquired to buy equipment for a business. It is offered by both financing firms and conventional lenders. The types of equipment can be any substantial asset apart from real estate.
For better understanding, let’s consider an example- when you take a loan to buy something or you mortgage property, you are required to make regular payments until the sum is paid off. Similarly, in equipment financing, the lender can charge a certain amount of down-payment alongside monthly payments (installments) to pay off the entire loan.
If you desire to upgrade your machinery, replace old appliances or add to equipment inventory, equipment financing is a suitable choice. Have a clean credit score coupled with a solid business plan and apply for this type of financing devoid of documentation-heavy loans.
Benefits Of Equipment Financing:-
- The requirement of capital is zero to little. One doesn’t need to invest large sums up front. The cost is spread over a lifetime by paying monthly installments and lease rentals
- While paying off the amount, you can start using the equipment almost instantaneously.
- When you pay off the entire amount, the equipment will be all yours.
- The financed equipment itself is the collateral. Therefore, you do not need to mortgage property or any other possessions to acquire the funds.
- This financing makes sure that the upcoming debt-raising capacity is not affected.
- As there is heavy competition in the market, your business needs to have up-to-date and relevant technology to boost your business. With limited upfront money required, it can enhance efficiency and output and resurrect the venture.
- The tax benefits are another lucrative feature to consider equipment financing. Being tax-deductible, they lower the total taxable revenue.
How To Get Equipment Financing?
Especially in these times of pandemic, when businesses suffered from such blows and jolts, the second half of 2021 is extremely crucial for the financial revival of individual and small businesses. Certain criteria need to be fulfilled for obtaining this financing-
- Age- Minimum age for acquiring a loan is 21 and the maximum age for the maturity of debt should be 65 years, respectively.
- Nature of firm- The business should be making a profit for the last 3 years and geographically stable for at least the past 2 years.
- Tax Statement- The company should be able to provide income tax statements for the previous 2 years.
- Documents- ID proof, Residential and Business proof, Suppliers’ detailed information, previous six months’ bank statement, are among the primary documents required.
The tenure for repayment generally is 5-7 years. Equipment availed can be for manufacturing, IT requirement, construction, aviation industry, and electronics purposes. Termed as unsecured loans, banks can offer 80-90% finance for brand new appliances. Interest rates are relatively low and repayment is subject to customer convenience. Upgrade your existing machinery to take lead!