Businesses can use the business equipment loan for a multitude of purposes. In this blog, we will discuss in detail how to utilize business equipment loans optimally. Furthermore, we will discuss how availing of a business equipment loan helps in the growth of a business.
A business equipment loan, also known as equipment finance is a specific and unique type of loan given to finance the procurement or repair of equipment that a business needs for the production or manufacturing of its goods or products. This is a type of business loan meant to meet all the equipment-related requirements of the business. Buying a piece of equipment upfront can be a huge financial expenditure. If a business needs to buy multiple pieces of equipment then the cost will offshoot multiple times. More often than not, businesses do not have such liquid resources using which they can make upfront purchases of the required equipment.
Taking a business loan for equipment allows businesses to procure, repair or lease equipment without having to pay for it upfront. With a business equipment loan, business owners can avail of the necessary equipment with no to little cost and repay the same in instalments as per the terms of the equipment finance. Note that, equipment financing is essentially a term loan. Thus, it comes with a fixed tenure of repayment and a pre-decided business loan interest rate. Business loan eligibility for equipment financing primarily requires a good CIBIL score, preferably above 685, and the age of the applicant should be more than 24 years. Also, the age of the borrower should not be more than 70 at the end of the loan tenure.
Now that we have understood in detail, what is a business equipment loan, we will move on to understanding how, you, as a business can effectively utlize business equipment loans.
a) Buy New Equipment: If the business witnesses better market and industry conditions, they may want to act quickly and acquire some new equipment for your business. Or if there are lucrative discounts on the prices of equipment, businesses will require easy and quick access to funds for the purchase. The funding requirements to buy new equipment can be easily met using a business equipment loan.
b) Repair Existing Equipment: Machinery undergoes significant wear and tear over time due to continuous usage. Machinery and equipment used in the production or manufacturing of goods are usually sturdy. They come with a long operating cycle. But equipment needs good maintenance and sometimes repair too. The repairing costs are also expensive and the same can be covered through a business loan for equipment.
c) Avail of Equipment Leasing: Businesses can also utilize business equipment loans to lease equipment instead of buying them. This will significantly lower their equipment procurement cost. To fund the equipment lease, business owners can avail of a business equipment loan. Subsequently, they will have a business loan with a lower principal amount and lower business loan interest rate payment.
d) Replace Outdated Equipment: After continuous and prolonged use of the business equipment, it might be time for the business to replace the existing set of equipment. Outdated or deprecated equipment will add to the costs by adversely affecting the productivity of the business. In such a scenario, taking a business equipment loan can help a business replace its outdated equipment without any further delay.
e) Access Latest Technology: If as a business owner, you are planning to expand and want to take strategic measures for the growth of your business, you must tap into the potential of upgraded and latest technology. Having said that, it is not easy to fund the latest machinery and technology. However, with a business equipment loan, you can easily buy the best and the latest equipment for your business.
f) Add to Existing Equipment: Another aspect of the expansion of business is an increased scale of operation. An established business may plan to increase its production or if the market is experiencing a boom, to match the demand, the business may have to add to its existing equipment setup. This additional need for equipment can be funded using a business loan for equipment financing.
The discussion of how to utilize business equipment loans will be incomplete without understanding how this business loan helps in the growth of your business –
a) Increase Income: Purchasing new equipment will allow you to expand your production, and thus your revenue and income.
b) Improve Product Quality: Using good and updated equipment ensures that the quality of the good or product manufactured is of top-notch quality.
c) Augment Efficiency: To make sure that the efficacy of the production unit is not compromised, it is essential to replace outdated or damaged equipment.
d) Strengthens Balance Sheet: Purchasing new equipment or leasing them improves your balance sheet. It is an indicator of the good financial and operating health of the business.
e) New Business Opportunities: Increased and improved production capacity with quality final products will not only earn revenue but also goodwill, which in turn bring new business opportunities.
f) Maintain a Backup: In case there is a sudden breakdown of machinery, easy and quick access to new equipment will ensure that the production process remains unhindered.
Business equipment loans offer a vital lifeline to businesses seeking to acquire or upgrade essential equipment. Note that before you take a business loan for equipment, as a borrower it is imperative for you to diligently assess the business loan eligibility criteria, as requirements may vary among different lenders. By doing so, you can make informed decisions, secure the necessary financing, and ensure the uninterrupted operation and growth of your business.