Equipment loans are typically a lump sum of money that a business borrows to finance buying new equipment. Unlike other loans with equipment loans, there is a restriction specifying that the funds must be used only for purchasing equipment. The equipment itself is used as collateral to secure the amount borrowed. This is a benefit for many business owners who do not have other types of collateral to put up as security. The value of the equipment over the time of the loan will hold more importance rather than the credit history of the borrower.
In an equipment lease, the lessor, who is the owner of the equipment, allows the lessee to use the equipment for a specified period in exchange for periodic payments. The business will have to make monthly payments to a leasing company to cover the equipment rental payments. By leasing rather than purchasing equipment directly, companies can utilize upgraded equipment without disrupting the cash flow.
Once the terms of the equipment contract are up, the borrower has three options:
The borrower can opt to end the terms of the contract and return the equipment
Extend the terms of the contract and continue to make payments to continue using the equipment
To buy the equipment outright from the leasing company.
There are several benefits of equipment loans for business owners. They are as follows:
Equipment loans can help increase the business working capital when a business decides to utilize equipment financing rather than large up-front equipment purchases. When a business utilizes their working capital to make equipment purchases, the cash flow available takes a big hit, which can leave many businesses short. By getting equipment financing instead, business owners can use their working capital to cover other expenses that occur in a business.
With equipment loans, the business can typically make payments to the lender over the course of the agreed-upon terms. For most equipment financing, the interest paid on the amount can be written off as tax-deductible. With equipment leases there are tax benefits specifically for most equipment lease program terms, the business owner can choose to write off the entire lease payment under business expense. This means that over the period of equipment financing terms, the entire amount paid can be written off by deducting the monthly lease payments on the annual tax report.
Another benefit of this financing is it allows businesses to always make the best use of new technology and get the most effective and efficient tools without worrying about the cost of the equipment. One reason many business owners feel restricted when purchasing a new equipment is the cost of the equipment, as it is not cheap, and not all businesses can afford spending big on equipment. With the help of equipment financing business owners have the option to acquire the tools required saving on the working capital.
If a business wants to purchase new machinery, but they do not have the necessary funds, they could apply for a business term loan and receive a lump sum of funds from a lender, some of the funds can be used to purchase new machinery. However, spending a large chunk of their business term loan on equipment purchases might result in a working capital shortage. With equipment loans, you can buy the machinery and if the business runs into a working capital shortage, you will still have the option to apply for a business term loan later.
An easier business loan application process saves a lot of time, the entire process from application to closing can often be completed within 24 hours. However, there is one distinction when it comes to applying for equipment loans the size of the equipment purchase. If a borrower has strong personal credit, this means the business has been in good standing for a long time, and the equipment being financed will hold its value, borrowers can expect a very quick and easy application.
At Bajaj Markets, you get a business loan amount of up to Rs. 50 Lakhs within minutes at attractive interest rates. The funds can be used in undertaking various business operations, such as an expansion of your business, acquisition of other companies, buying high-value and getting new machinery or equipment, etc. Applying for an SME loan is an ideal option for financing equipment purchases because of its flexibility and affordability. The application process for business loans is easy with personalized pre-approved offers, instant approvals, and quick disbursal of the loan amount, on the Bajaj Markets App, you can get the most attractive interest rates on loans. Also, you can get a detailed Financial Health Check Report (FHCR) for free.