How to Get equipment financing for business
Aug 24, 2021
India today is a land of opportunity. There has never been a better time to start a business in the country. In the last 5 years, India’s global ranking in the ease of running business list has jumped from 142 to 63. The digital transformation has led to a tremendous increase in opportunities as well as resources for doing business.
This decade belongs to MSMEs. Micro, Small, and Medium Enterprises of India could lead the charge towards exponential growth. However, for MSMEs to prosper, they need to have access to resources, talent, and most importantly, access to capital. And access to capital has always been a huge roadblock.
Raising capital through equity dilution is one path. However, it leaves you with less ownership of your company, and no owner likes that. The second and the more ideal path is to raise capital through debt. It is where equipment financing comes into the picture.
What is the meaning of equipment finance?
For an MSME to grow, it needs to buy equipment and machinery to boost its production capacity. The more they can invest in equipment for their business and themselves, the faster the possibility of growing. However, this equipment does not come cheap. It is expensive, which often makes it difficult for small businesses to finance them without MSME or SME loans.
Equipment finance refers to business loans or leases used to procure business equipment. This equipment could range from computer systems, medical equipment, manufacturing materials, etc. It can be categorized into equipment loans and equipment leasing.
Opting for an equipment loan implies wanting to purchase an asset with the capital. A purchased asset may yield long-term value and have a high return on investment. However, there are a few risks that come with undertaking a loan.
Loans may or may not have collateral. If they do, failure to repay the loan may result in loss of possession of the asset. The loan also may not be issued very easily and may take a while. Creditworthiness and past borrowings are examined and scrutinized. However, if the loan is for the correct purpose and investment is made in the right asset, it could work out perfectly for the business. It is often preferred by the business that incurs a high capital expenditure.
If a loan is something you are unsure about taking, equipment leasing is another aspect of equipment financing. It involves taking a certain sum of money to borrow or lease an asset.
The advantage of leasing is that it is less cumbersome than taking out a loan and is usually more beneficial in the shorter run. Also, it saves customers from the headache of worrying about outdated assets. With the way the world is moving and upgrading, there may not be as much need for long-term assets. Leasing provides the flexibility to customers to opt for certain equipment which they feel may lose relevance after a while.
Of course, the trade-off is the inability to build long-term value by investing in long-term assets. The leasing contract may have some exceptional clauses as well which need to be taken care of. But all in all, equipment leases and loans for small businesses provide ample support and assistance to enterprise owners.
Why is equipment finance important?
While starting, a new enterprise needs to invest heavily in its equipment. Those assets are needed to increase the efficiency of the business. However, it may be difficult for the enterprise to finance it. New ventures are usually cash-strapped, and it may take a lot of time for them to build the required capital.
On the other hand, an established business may face a similar problem too. For a running business, upgrading to the next level may require excess cash. In the absence of that cash, it becomes difficult for them to move to the next level. It is where equipment finance is crucial. Applying for business loans makes up for the cash crunch. And even if they possess enough capital, a business loan gives them the leeway to invest it in various other spheres.
Be it an IT firm, a healthcare center, or a vehicle repair store: equipment finance becomes essential for all.
Advantages of equipment financing
Equipment loans provide various benefits to the customers. They have allowances and features which make these loans stand apart. A few of them are:
- NBFCs usually provide unsecured business loans, i.e., collateral-free loans under equipment finance which makes it easier for SMEs.
- The loans provided are flexible and as per the budget and capacity of the customers.
- The equipment and business loan interest rates depend on the credit rating and past borrowing history of the customer but are usually lenient.
- It is easier to finance new equipment as lenders provide 90–100% capital to finance it.
- It prevents the customers from going through the hassles and delays of taking loans the traditional way. It provides them with several other convenient alternatives.
Types of equipment financing
Equipment finance is not limited to specific types of equipment. It covers a broad range of industries, thus making it high in utilitarian value. These are a few areas where equipment finance is available easily:
- Medical equipment financing: The loan or lease is for the medical industry where the capital is utilized for purchasing hospital and clinic equipment.
- IT equipment financing: This loan is for businesses that need IT equipment like computers, projectors, servers, and other technological equipment.
- Construction equipment financing: This type of loan is common. It is for businesses in the construction industry where they need to purchase heavy and expensive machinery.
- Manufacturing equipment financing: Companies that require capital to buy moving parts and manufacturing components can opt for this loan.
- Electronic equipment financing: This type of loan is for the electronic applications a company may need for itself.
What to consider before opting for an equipment loan?
An equipment loan sure seems like an attractive opportunity to further your business pursuits. However, there are a few factors you should consider before taking out the loan.
While taking out loans is a better way to build credit, you must ensure that you have the capability of paying back the loan on time. While there are advantages to building good credit, like competitive interest rates and higher amounts, defaulting leaves you in a deep pit. Hence, before drawing out an equipment loan, you should be certain that the loan would help you build credit, and not damage it.
Avoid drawing out a loan impulsively. A loan should add value, not misery. Analyze your cash flow statement, working capital changes, and balance sheet thoroughly. You should be in a comfortable position to pay back the loan eventually. If your finances do not support the loan, it could end up becoming a heavy burden.
Return on Investment
All equipment and machinery may not require equipment loans. Carefully calculate the return on investment on the equipment. Since it is a business loan and you should pay interest, you should be sure that the equipment you are taking the loan for is a profitable asset and can yield a good return on investment.
Do your research. Be it while buying a house or stock, you carry out extensive research while buying the asset. Similarly, apply for such an online instant business loan while looking up all possible sources and equipment finance companies in India. As mentioned earlier, banks and NBFcs are the primary sources of equipment finance. But even among them, you will find varying interest rates, collateral requirements, and documentation processes.
Where to apply for equipment financing?
While there are several banks, NBFCs, and equipment financing companies in India, it is important to pick the one which will benefit you the most. FlexiLoans is an NBFC that fits the bill and caters to all your needs. FLexiLoans provides collateral-free, unsecured business loans. Hence, there is no hassle of providing additional security. The process of opting for a loan is simplified as well, with a 4 step documentation process. All of it can be carried out digitally.
RBI secured, FlexiLoans is transparent and upfront about the charges and makes sure that you are aware of them too. It is important to know that the money you are borrowing is from a source that cares about you.
The MSME ecosystem is exploding. For you to keep up, you need a steady supply of capital. Equipment financing provides you with that opportunity. It has never been easy for MSMEs to apply for MSME loans traditionally. Equipment loans break the barrier and provide you with a more convenient and flexible method. With the ever-growing competition, it is important to build a line of credit while building a business. Structured and affordable equipment loans provide that opportunity as well. Get your business up and running by taking up this business loan in India now.