What is an Equipment Loan and How Do You Get It?
As a business owner, you understand how important it is to quickly and economically obtain, upgrade or replace the equipment needed to perform your daily tasks. However, purchasing equipment outright can put substantial strain on your cash flow. Purchase financing may be the ideal solution to keep your business functioning at optimal performance or expand to meet increasing demand. The following will provide an overview of how purchase financing works and how to get one.
What is Purchase Financing?
Purchase financing refers to a loan used to purchase business-related equipment. Equipment loans provide for periodic payments that include interest and principal over a fixed term. As security for the loan, the lender may require a lien on the equipment as collateral against your debt. Once the loan is paid in full, you own the equipment free of any lien. Failure to pay your loan may result in the repossession of your business assets or your personal assets, in the case of a personal guarantee.
Businesses will often have the need to purchase, replace, repair, or upgrade various kinds of equipment to process, manufacture, or produce their product. But what do you do when your equipment is old, worn, and needs to be replaced? Often you have the choice to either purchase new equipment outright or lease. But, with purchase financing, you can buy the equipment for business-related activities using the credit limit offered by financial service providers.
Features of Purchase Financing
The borrower must clearly understand the type of equipment required for their business and the lender who can give them the best deal. We have enlisted some of the important points to remember while applying for an equipment loan.
Quantum of Loan: This differs among each lender. The lenders consider the cost of the equipment and the borrower’s credit standing while deciding the loan amount. Generally, one can avail up to 90% of the purchase cost for new equipment and up to 75% of the purchase cost for used equipment. But it varies based on the financial service provider from whom you are availing the loan.
Security/Collateral: The purchased equipment is hypothecated to the lender, and hence no additional security is required. However, for a higher loan amount, the lender may insist on additional collateral.
Eligibility: Individuals, Partnership firms, Corporates, Trusts & Societies, Miners & Contractors, and more are eligible. In most financial service providers’ cases, the business should have more than three years of business continuity.
Repayment tenures: The repayment tenure is generally higher in the case of equipment loans. Sometimes it even ranges from 7 to 10 years.
How to Get Business Equipment Loan
Excellent credit ranking is required for most equipment loans. After all, it’s an investment in your business and your business’s growth and revenues. You may want to consider applying for a loan at the bank with which you currently do most of your business. Or you may want to consider a nontraditional lender which offers assistance for small and online business owners in need of fast access to capital to grow their business.
Finance providers like Oxyzo offer unsecured business loans to manage working capital requirements and purchase equipment.
If you have had strong sales but struggle with little or bad credit, a business loan may be a particularly good option for your small or online business. Getting the capital you need when you need it can mean the difference between the success or failure of your business. Traditional lenders, such as banks, are often reluctant to extend traditional equipment loans to small or online businesses with poor or bad credit. Such businesses will be deemed “too risky” and will have great difficulty securing a traditional bank loan for their business needs. So, consider the services of financial service providers like Oxyzo for unsecured credit for working capital requirements and equipment financing.