With the market getting more competitive day by day, it is of utmost importance for you to keep your business plans up to date. Among other things, it will require you to upgrade your machinery or invest in new ones. If you do not have all the capital to buy the machinery, you still don’t have to worry. That is where equipment loans come to your rescue.
Equipment Loans have been in the news a lot lately. They are an easy and quick method to purchase equipment on loan. There is, however, a lot of misinformation about these. For example, it is usually thought that one needs collateral for Equipment Loans and that the interest rates are high.
This is not always the case. Also, contrary to the belief, Equipment Loans are not just for huge enterprises that generate good revenues. Both big and small enterprises can avail equipment Loans as well. Therefore, it is important to gather the right information about Equipment Loans to make the right decisions about the same.
For you to make an informed choice about Equipment Loans, it is important to know the right details and procedures. Read on to know all about equipment loans.
What Are Equipment Loans?
Equipment Loans are a kind of credit financing for businesses that use or intend to use various equipment. There are many sectors for which one can avail an equipment loan. And there are several benefits associated with availing the same.
All enterprises- public, private, trusts, corporate, etc. can avail an Equipment Loan. These enterprises should be stable for at least the last two years. If you think you have one such enterprise, you are good to go.
Who Gives an Equipment Loan?
So, where can you get an Equipment Loan? There are two kinds of financial institutions that offer Equipment Loans - the Banks and the Non-Banking Financial Companies or Institutes (NBFCs or NBFIs).
Banks are usually the first choice of any businessman for loans, and rightly so since they are reliable and quite strictly regulated. If you plan to avail an Equipment Loan from a bank, you might need to consider that banks do not offer Equipment Loans without collateral.
Due to the same factor, the process of approval and other formalities usually takes a fair amount of time. Nevertheless, the banks are always a safe option to go to.
Non-Banking Financial Companies or Institutions (NBFCs or NBFIs)
Non-Banking Financial Companies or Institutions have gained a lot of popularity among new and small businesses lately. This is so due to the lesser strict policies and easy documentation processes that they offer. Businesses can avail Equipment Loans from some these services without collateral or security.
These loans are usually referred to as unsecured business loans. To add to this, these loans require less 'paper works,' i.e., the documentation, and have minimalized eligibility criteria leading to a faster sanction of the Equipment Loan. Having explained that, it is important to state that these financial services that provide unsecured business loans usually have higher interest rates.
Therefore, it is upon your discretion to choose which type of financial institution suits you better for your Equipment Loan. Let’s move ahead and look at what makes you eligible for an Equipment Loan.
When Can You Get an Equipment Loan?
The banks and other financial companies offer Equipment Loan to the enterprises in several situations. In addition to availing it for buying new equipment from scratch, you can also avail equipment loans for any of the three reasons like replacing old machinery, updating them, or to add the existing machinery systems.
With the right documents and reasons, your business becomes eligible to apply for Equipment Loan. Before we get into the technicalities of eligibility and criteria, let us first look at why it is a good idea to apply for an Equipment Loan.
Why should you take an Equipment Loan?
Machinery, in general, is a good asset for most businesses. Usually, they cater for a long time, thus becoming a highly profitable investment. Lack of funds should not hinder you from investing in such assets. This is where an Equipment Loan can come to your rescue.
This is not the only benefit you will have from availing an Equipment Loan. Here is a list of a few other reasons you must not hesitate to apply for an Equipment Loan.
Many banks and other financial services offer Equipment Loans collateral free or unsecured loans as one may call them.
You can end up getting 90% to full finance for the new machinery via Equipment Loans when availed from some specific financial institutions.
Most vendors offer pre-approval to ensure to you a hassle-free procedure of availing an Equipment Loan.
You do not have to worry about repaying options. Many vendors provide flexible loan options to their customers, wherein they can repay according to their budget and convenience.
Since the interest rates depend on your repayment history and credit scores, it is highly probable that you will get an Equipment Loan on a lower interest rate if you have the scores high.
Now that you have seen the various benefits one can have from availing an Equipment Loan let us look at the different kinds of Equipment Loans offered by various Banks and NBFCs or NBFIs.
Types of Equipment Loans
Different kinds of enterprises require Equipment Loans for different kinds of equipment. Based on these different kinds of equipment, there are several types of Equipment Loans.
Manufacturing Equipment Loans
The manufacturing equipment loan is availed by the enterprises requiring equipment related to large scale production and manufacturing.
IT and Office Equipment Loans
These are availed by the enterprises requiring office equipment like computers, projectors, fax and photocopier machines, laptops, and other electronics concerning office usages.
Construction Equipment Loans
The construction equipment loan is availed by the enterprises requiring equipment related to various kinds of construction. Almost all builders and real estate businessmen at some point end up availing this loan for purchasing their construction equipment.
Corporate Aviation Equipment Loan
This corporate aviation equipment loan is availed by the enterprises relating to the aviation industry. They require equipment to be used on-flight and at airports.
Medical Equipment Loans
This loan is availed mostly by hospitals and other medical industry units, enterprises requiring equipment related to clinical, surgical, and heavy medical processes.
Electronic and Appliances Loans
This type of equipment loan is availed by enterprises for their electronic equipment and appliances for the business.
When Can You Get an Equipment Loan?
Different banks and financial companies have different requirements for their eligibility criteria. However, here are some criteria that are usually required by most institutions.
At least 2 years of business vintage
A minimum CIBIL score of 715
Annual turnover of over 13600 USD
ITR filed in the previous year of over 3400 USD
Following are the documents any or all of which the bank or the NBFC might ask you to provide to the whiling filing for an Equipment Loan
Bank statement for the business
If you think you are ready to apply for an Equipment Loan, keep reading to learn how to avail one.
How to get an Equipment Loan?
To avail an Equipment Loan, here are a few things that you must carefully look into.
Recognize your needs. It is important to know what exactly you want before you start searching for it. So, recognize the following things-
What kind of Equipment Loan do you need to avail?
Which is the right lender?
Do you meet all the criteria for applying and availing an Equipment Loan from the lender?
Once you have cognized yourself about these, you are good to apply to your preferred institution. After the lending institution receives your application, they will then check for your eligibility and appropriate documents. When all of that has been found satisfying, your Equipment Loan will be approved.
Things to Keep in Mind
Here are a few other things to keep in mind.
Make sure you have done enough research and finalized the kinds of machinery/ equipment you need before applying.
Also, consider the availability/ arrangements for the availability of enough space for the new machinery/ equipment.
While choosing the lender, look for the one who offers lower interest rates and low processing fees and does not have any hidden charges.
With the technological advancements, applying and approving Equipment Loans has become easier and quicker, so choose an online method for your convenience.
Even the submission of documents online is possible and safe.
Make sure that you explore all options available for repayment and choose the one that suits you the most.
Due to all the misinformation about Equipment Loans, most businesses are very apprehensive about them. The real fact is that these loans are not as difficult to apply for, avail, and to repay as they are posed to be.
When availed from the right equipment vendor, equipment Loans can go a long way in helping your business boom with the help of the new equipment. Hence, it is important to make an informed choice about the same. We suggest you be attentive and extra-careful while availing an equipment loan to make the best out of it.