Improve Cash Flow With Equipment Finance
The growth and development of the business sector are at an all-time high today. This sector forms a major portion of the economy of our country. In part, the popularity of business can be credited to the spurt of small businesses that boost micro industries.
SMEs form a large proportion of India’s business sector, and consequently, these sub-sectors have garnered attention from several business and finance developers. But even though the small business sector has witnessed an expansion in its ventures, there still remains some ambiguity regarding the access of entrepreneurs to the small business development policies.
At present, there are still a large number of individuals who are unable to give their business a start, or they have started a business but are struggling to give it a boost. One of the leading businesses under this arena fail due to a lack of machinery and equipment.
As industry and industrial work are the businesses’ backbone, a deficiency of machinery or tools may inevitably lead to the business’s doom. This is particularly devastating for a small business and its owner because these avenues already face limited options when it comes to equipment and machinery.
So, what should a business owner do in such an uncertain circumstance?
Apply for equipment finance. This is an underrated tool when it comes to financial gameplay in business. Not only does equipment finance fulfill the requirement of business-related tools and machinery, but it also improves the business cash flow. How? Let’s find out!
Table of Contents
What Is An Equipment Loan?
In simple words, an Equipment loan is a form of business loan acquired by a business/business owner to purchase new tools or machinery associated with the production in a business.
Many people often perceive an equipment loan as being limited to the manufacturing businesses. But it isn’t so as the equipment loan can be utilized by other business sectors as well.
So, what classifies as ‘equipment’ in a business?
The tools used by the staff members employed under a business franchise, transportation aids, or the elements associated with the business environment all fall under the category of business equipment.
Equipment is a broader term in a business. It can include furniture, vending machines, coffee machines, desks, computers, printers, and everything in between. There is no limit. Equipment is anything that is incorporated in business to produce or increase business productivity.
Thus, the business owner may utilize the funds obtained from an equipment loan for the procurement of such tools.
Hidden Perks Of An Equipment Loan:
An average business person shall view an equipment loan only as a means of buying the machinery of business. But the reality of this loan can go way beyond that. Some of the perks associated with equipment loans that can be enjoyed by a business owner include:
- Capital growth of the business: One of the starting pros of acquiring an equipment loan for a business is that the entrepreneur receives equitable funds that in turn, behave as a capital asset for the business.
- Improve the cash flow in a business: Now, this one’s the most missed perk of an equipment loan. Why? Because a majority of business owners fail to recognize the potential of an equipment loan to enhance the cash flow in the economy of business.
Equipment Loans And The Cash Flow Of A Business:
Let’s talk about how equipment loans help in improving the cash flow of a business?
Cashflow is simply the evidence of a business’s financial position at the end of a financial year. It refers to the difference between the total cash inflow and the total cash outflow.
Naturally, the procurement of an equipment loan shall help in increasing the cash inflow of a business as the equipment bought from such a loan shall serve to be an asset for the business. Thus, equipment loans contribute to the prosperity of a business.
There’s no denying the fact that a business such as that of trucks, tractors, and other transportation trade will benefit more in the cash inflow because such businesses can cash in a huge sum as capital in a single time. But that does not mean that other businesses cannot reap such benefits.
Business owners are always looking to maintain a positive cash flow for their business. For that to happen, it is obvious that the cash inflow should be greater than the cash outflow in a business. An equipment loan is a sure shot boost for the business towards a positive business cashflow.
The equipment loan could serve to boost the cash flow to an even greater extent than that through a business loan. Why? It is because, unlike a business loan, an equipment loan results in the direct manifestation of an asset in the form of builder tools and business-related machinery. This process may be prolonged under a business loan as such loans serve to provide initial or sustainable capital funds to the business owner. Asset generation will happen as a yield of business operation.
The increase in cash flow as a consequence of acquiring an equipment loan shall also serve to pull up the position of a business among its competitors. This works in a manner where a larger equipment loan for buying top-of-the-line machinery will, in turn, prove to be beneficial to the business by a) providing better tools for production and operation and b) pushing a much higher credit in the business. Thus, in any case, it is a win-win for the business!
How Does Equipment Loan Work?
Nowadays, the leading lending authorities in India are providing Equipment loans to business owners.
Under an Equipment loan, the lender offers the business owners funds to purchase business-related machinery and equipment. You must be wondering that ‘One can simply apply for a business loan instead of obtaining machinery for the business operation’?
This is where the difference between an equipment loan and the good old business loan kicks in. Under an equipment loan, the lenders accept the equipment as loan security. This means that the business instruments that are purchased using the funds availed from an equipment loan will serve as collateral until the loan is paid back.
This mechanism serves a two-way benefit to both lenders as well as the borrower. The borrower gets funds for purchasing the required tools for his/her business, and lenders are benefitted. Now they don’t have to sanction an unsecured loan without any collateral, which can be the case with a business loan.
It is important to note here that as the equipment serves as collateral under such a loan, the amount of loan sanctioned does not exceed the equipment’s substantial value. This is because in case a lender gives an equipment loan greater than the price of machinery which is to be purchased, then the rest of the capital will be outstanding from collateral, and it may lead to improper or incomplete repayment on the part of the borrower. The lender would want to remain on the safer side.
The Advantages Of Equipment Loans:
Equipment loans are no stranger to providing benefits to business owners. The key benefits of Equipment loans offer are:
- Tax benefits: As with business loans, equipment loans also provide the business owner with some tax exemptions. These tax benefits are generally availed on the loan interests on the business transactions and their income tax returns.
- Easier cash flow: Equipment loans provide an increase in cash flow, ushering the business into a positive cash flow. As the equipment related fund usage is targeted and occurs during a fixed time frame, the management of equipment funds is convenient, and it can be properly timed.
- Upscaling of business: Equipment loans offer prominent scalability in the cost and economic feasibility of a business. When a business owner tries to expand his/her business’s production by venturing out and bringing new machinery, it indirectly leads to the growth of the business as the higher is the production, the better is the performance of a business.
- Business flexibility: The equipment loan offers funds to a business whose cost can be divided into various sections over time. Buying the complete machinery that will be required throughout the tenure of business will never be the case. A variety of requirements arise as the business grows. Here the equipment loans help in fulfilling the time to time needs of the business.
- Branching out the expenses: It is an established fact that every business will need equipment to operate. Thus, acquiring an equipment loan will never lead to a non-usage of funds. It will be a permanent expenditure for a business. Therefore, business owners can utilize these funds in other business works, such as marketing and advertising.
Types Of Equipment Loans:
There are different categories of equipment loans available today. Some of these are mentioned below:
- Leasing of equipment: It is a good option for equipment loans as the operation of the business is not hindered in any way. There are two types of equipment leasing, which are finance and operative leases. These leases differ in their tenure and commitment levels. Such type of finance strategy offers a healthy cashflow order in business.
- Hire purchase: Broadly similar to leasing equipment; this equipment financing strategy operates through payment in installments. It differs from leasing in the sense that hiring equipment for your business is going to be reflected in your balancing sheet. Thus, the use of either of these strategies should be done keeping this fact in mind.
- Finance for Plant Equipment: As the name suggests, this finance scheme aims to procurement heavyweight machinery and equipment for large-scale construction. If yours is a heavy work business with large production on a per-day basis and you require heavy lifting and shifting of the goods, this is the perfect finance strategy for you.
Procedure For Equipment Loan:
The procedure to apply for an equipment loan is easier than that of a business loan. If one fulfills the loan eligibility criteria, then the procedure can be fulfilled within as little as 24 hours. The icing on the cake is that the business owners can now apply for equipment loan online.
So, if you’re looking for a way to avail of an equipment loan for your business, then head over to Lending kart. All you have to do is provide the details, and Lending kart shall do the rest!
Equipment loans are one of the hidden treasures of the business industry. Many of the large-scale business enterprises have already exploited the profits of this loan, and it is high time that small business joins the ride. In the long-term scenario, the realization of the scope of equipment shall prove beneficial to the business and the business owner as well in terms of cashflow.