SMEs and MSMEs are the spine of the Indian economy, contributing nearly 27% to India’s GDP(Statista Report). But to continue being India’s growth engine, MSMEs must be equipped with adequate resources, money and talent. The lack of liquid assets has always been a stumbling factor for small businesses. This is where Equipment Finance Loan comes into the picture.
But why should you be taking out equipment loans? Look, diluting your equity to raise money isn’t really a good idea because you lose partial ownership and hold on to your business. But with easy business equipment loans, you can acquire, replace and update equipment without compromise.
Before further discussing the process and reasons behind this financing, let’s understand what equipment financing is.
What Are Business Equipment Loans?
An equipment finance loan equips your business with the financial capacity to obtain new or upgrade existing equipment. The creamy part of equipment finance is that it is available across classifications from small medium, to large enterprises!
Moreover, the amount, interest rate and tenure depend on the lender and business owner. While equipment financing, the asset in question is immediately considered as loan collateral. Therefore, in case of a breach, the lender can file a legal claim to seize the asset and recover funds. Still, the risk factor and interest on an equipment loan are relatively lower than other counterparts.
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Equipment Financing: Eligibility Criteria & Documents
Equipment finance in India is a powerful tool for organizations, whether classified as small or large. Though the term, criteria and paperwork variates from lender to lender. Below are some of the generic data required on equipment financing.
Eligibility Criteria
- You may be an individual, corporation, trust, proprietorship, public or private firm or contractor.
- The minimum age required for an equipment finance loan is 21 years, while the upper age cap is 65
- The company must be in profit for the last 3 years.
Documents Required
- ID Proofs: Aadhar Card, PAN Card, Passport and Voter ID Card
- Address Proof: Residence and Business
- Business Registration Proof: Partnership deed, Copies of MOA and AOA
- Bank Statement: Last 6 months
- KYC Papers
- Last 6 months’ bank statement
- ITR statements for the past 2 years with audited financials
- Passport-sized photos of the applicant and co-applicant
- Details of suppliers and machinery
- Performa Invoice for Equipment to be purchased
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What Are The Benefits Of Equipment Financing?
Equipment loans create a shimmering pathway for business owners towards success. So, let’s uncover the hidden gems that await those who dare to drift into the realm of business equipment financing.
- At OneNDF, some of the lenders even offer up to 90% finance for new equipment
- Further, Equipment Finance is mostly collateral-free
- Most financial institutions pre-approve your loan, making it a hassle-free process
- You can choose from various loan choices to repay the debt at their convenience
- Interest rates are competitive and variate as per repayment history and credit report.
Why Should You Be Getting Equipment Financing?
Just like a wizard needs a wand, your business needs the right equipment! Hence, Equipment financing is your secret spell to unlock rapid growth and efficiency. With the latest tools and machinery at your disposal, your business can soar to new heights, leaving your competitors in awe.
But what if you have difficulty affording it? New businesses may need help raising their funds to get off the ground. Moreover, an existing business might also face the same.
Upgrading your business to the next level requires additional funds, and it’s tough to advance if you don’t have one. Therefore, small business equipment loans are critical and emerge as an excellent solution.
6 Types Of Equipment Finance Loan In India
Lenders at OneNDF provide different equipment loans based on the specific requirements of the businesses. Keep reading to see what they are.
1. Manufacturing Equipment Loan
Companies in the secondary or manufacturing sector avail of these loans to purchase new equipment for facility upgradation.
2. IT And Office Equipment Loan
These funds are meant for office upgradation like purchasing new computers, laptops and other electronics.
3. Medical Equipment Loan
These loans are tailored for medical professionals to purchase and upgrade medical equipment.
4. Construction Equipment Loan
These loans are designed for construction companies and associated firms. It helps businesses acquire construction equipment and meet repair expenses for the existing ones.
5. Corporate Aviation Equipment Loan
These loans are for companies in the aviation sector to acquire on flight and airport equipment.
6. Electronic And Appliances Loan
These loans are used by business owners to procure electronic equipment and other appliances for office use.
What Should You Consider Before Taking Out An Equipment Loan?
Equipment financing is an excellent opportunity to excel your business towards boundless growth. Yet, before you step in this direction, here are a few factors you must consider.
1. Credit Score
While taking out loans is a good way to build credit scores; however, to unleash this power, you must ensure diligent repayment. A good credit offers benefits like competitive interest rates and higher loan amounts, but in case of a breach, it will plunge you into a financial abyss. Therefore, before drawing out an equipment loan, make sure it will contribute positively to your credit journey, bolstering rather than tarnishing it.
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2. Financials
Avoid the allure of impulsive loans! A loan should bring value, not sorrow.
Firstly, analyze your cash flow statement, working capital fluctuations, and balance sheet. Ensure you stand in a position of financial comfort to repay the loans. Failure to align your finances with the loan’s demand would create an unpleasant situation. So, choose wisely for a loan that could lead to prosperity, not a burden.
3. Return on Investment
Not all machinery and equipment require an equipment financing loan. Thus, assessing the ROI for the equipment is important. Since it falls under the business finance category with an applicable interest rate, you should be sure that the equipment is a profitable asset and capable of generating a decent ROI.
4. Source
Prioritize research. As you diligently research when purchasing a house or stock, it is equally important to compare interest rates and other features mentioned above. With comprehensive research, you can make informed decisions and select the most suitable option for your needs.
Equipment Financing Made Simple In 4 Steps
Get ready to keep an uptick with new inventories with small business equipment financing in 4 steps. Here’s what you need to do:
Step 1: Ensure That You Nurture A Healthy Credit Score
Have you ever defaulted on a credit card bill? Got trouble with debt trap or debt default? Hold On! These factors work against your Equipment loan application. Lenders are reluctant to offer credit to such businesses because they perceive them as too risky. And therefore, excellent credit is a prerequisite for loan approvals.
Be prepared to present your business and personal credit histories when discussing your application, as a lack of clarity on these matters can delay approvals. Make efforts to improve your credit score and rectify any inaccuracies in your credit report to enhance your chances of securing small business equipment financing.
Step 2: Build A Strong Business Plan
Lenders evaluate your financial density using your business road map. So, how to build a strong business plan? Start by defining your business and elaborating on your product or service to gain approvals. Also, add details about existing cash flow and how this business is going to take shape in the long run. Finally, add an “Executive Summary” for lenders to know what your business is all about.
Step 3: Maintain Your Professional Track Record
Maintain a professional track record when applying for this credit. Lenders are likely to verify the background of the applicant. It is also important to showcase a track record of accountability and repayment.
Step 4: Be Prepared with Cash Flow Statements
Lenders might also ask for proof of your current cash flow before approving your credit. This would increase confidence in your ability to repay the loan. Also, organize your financial records with corporate financial statements for smooth approval.
By following the 4 steps as mentioned above, you can easily navigate the equipment financing process, secure the necessary funds to support your business’s growth, and become the epitome of success!
Summing It Up
Equipment finance loans offer a compelling solution, allowing you to procure, upgrade, and replace equipment without compromising your equity or ownership. With competitive interest rates, collateral-free options, and hassle-free processes, equipment financing empowers you to choose the right loan for your needs.
Before embarking on this journey, consider factors such as your credit score, financial stability, return on investment, and thorough research of lenders. So, take advantage of this opportunity, equip your business with the necessary tools, and witness the transformative power of equipment financing.
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Frequently Asked Questions On Equipment Financing
1. What is an equipment finance agreement?
An equipment finance agreement (EFA) is a single document consisting of a loan, security agreement, and promissory note.
2. What is the nature of equipment financing?
Equipment finance describes credit used to buy business equipment. It can be any tangible asset like office furniture, machines, vehicles, computers, or hospital equipment.
3. What is equipment finance?
It is a business loan that enables corporations to purchase equipment on credit via hire purchase, operating lease, or finance lease.
4. How do you finance new equipment?
At OneNDF, you can avail equipment loans from different lenders to finance new equipment for your business.
5. What is the source of finance for new equipment?
A loan is the first and likely most obvious method of raising cash for new equipment. Moreover, Banks and NBFcs are the primary equipment finance sources.
6. What is an example of equipment financing?
Equipment finance describes a loan used to obtain business equipment. This equipment could be any tangible asset excluding real estate – office furniture, computers, machines or medical equipment.
7. Who is eligible for equipment financing?
Individuals, corporations, trusts, proprietors, and public or private firms are eligible for equipment financing.
