Equipment loans help businesses acquire equipment that would normally be too expensive to buy. A part of the cost is borne by the owner and the balance is financed by the lender as a loan. It helps small businesses grow their revenue without affecting their working capital. You do not have to offer any asset as collateral as the equipment itself acts as a security. You may also get favorable rate of interest and may be able to deduct your monthly loan payment as an operating expense.
While there are many benefits of
equipment financing, the process of procuring the loan can be intimidating to the unfamiliar. So, consider taking these five steps to avail the loan to take your business to new heights.
- Understand the exact requirement
An equipment loan should not be taken just because it is available. Before applying for a loan, a borrower should know the precise requirement of the equipment, finance arrangement, benefits and the projected revenue from the use of such equipment. With proper planning, a borrower can reap the
benefits of an equipment loan and increase the profitability of his business
Also Read: Quick Guide to Medical Equipment Loans in India - Should you lease or buy the equipment?
Whenever you lease a machinery, there is a monthly rental fee that you have to pay. In case of a direct purchase of equipment witha loan, a monthly EMI goes towards the debt. The business owner needs to analyze these options and understand their potential benefits. The owner can then consider the suitable alternative based on the capabilities and scalability of the business. On the other hand, buying the machinery can be good for established businesses, whose sales are higher.
- Check your credit score
Once you have figured out the financing arrangement to buy the equipment, you should check your business’ creditworthiness. It is an essential eligibility criterion as it tells the creditor just how suitable you are for the loan. The higher your score, the better are the chances of getting loan approval. It will also determine other important loan agreement terms such as rate of interest, tenure, and many others. The bargaining power to negotiate the terms of the loan arrangement is greater for a borrower, who is deemed creditworthy.
Also Read: Why Medical Equipment Loan is Important for Your Medical Practice - Read, research and negotiate
Multiple financial institutions are willing to offer finances to your business, provided you fulfil their eligibility criteria. Therefore, it is of paramount importance to do a market study and analysis of the financial institutions and understand the practical details of the loan agreement before finalizing one. Such comparison will enable the borrower to start the negotiation with a set target in mind. Negotiation will further assist the borrower in reducing the overall cost of a loan, and thereby, improving the profitability of the business.
- Get the right documentation
Now that you have finalized your lender, the last step is to keep all the necessary documents ready. Financial institutions will want to know everything about your business before approving your application. You will need cash flow statements, business plan, credit reports, insurance policies,
tax returns, etc. It is imperative to have these documents ready before hand to smoothen the loan approval and dispatch process. If a document in missing, it can create a doubt in the mind of lenders, which can affect your chances of getting the loan approved. Therefore, you must have all the paperwork with you before you approach the lender.
Also Read: Growing Your Business With Machinery Loan—It Is Easy! To conclude Most businesses need the finance quickly to replace, refurbish or buy a new equipment. With these above-mentioned steps, you will be able to avail the equipment loan easily to take your business to the next level.
