COVID-19 has disrupted
business-as-usual with widespread consequences in how enterprises function
post-pandemic. The extended lockdowns and restrictions on operations globally
have left several companies crunched for capital with low visibility on a possible
turnaround.
As the pandemic prolongs,
businesses find themselves in a dilemma when it comes to capital expenditures.
On the one hand, entrepreneurs are looking to postpone equipment purchases or
upgrades with restricted cash reserves during a crisis. But on the other hand,
technology is advancing rapidly, and entrepreneurs know of the opportunity cost
in neglecting to invest in an upgrade – reduced productivity and obsolescence.
Additional Read: Will Covid-19 impact traditional recession-proof industries?
Equipment
financing could be the right solution to
this dilemma. Such loans help businesses without the lumpsum capital
expenditure upfront to invest in their future. Access to funding to procure the
latest equipment could help enterprises leverage advanced technology while also
conserving cash.
Here are a few ways in which equipment financing can play a vital
role in reviving businesses post the pandemic.
1. Benefit from the latest technology: In today’s market scenario, all businesses are trying
to extract maximum efficiency with limited capital. And equipment financing can help companies accelerate productivity by
backing them with the latest technologies. Instead of waiting for months to
revive business and accumulate cash to upgrade machinery, equipment loans help companies benefit
from cutting-edge technology without the huge upfront investment. Thereby
improving productivity while preserving cash reserves for more pressing
priorities.
Moreover, the upgraded
equipment offers enterprises an edge to stay ahead of the competition. In case
such machinery needs to be imported from foreign countries, integrated solution
providers like Tata Capital offers foreign funding in the form of Supplier
Credit and Buyers Credit to import machinery, giving businesses access to
cheaper funds in foreign currency.
2. Build Resilient Businesses: While
it is easy to postpone CAPEX plans amidst a crisis, outdated machinery has
consequences on business that cannot be overlooked. Timely upgrade of equipment
sets your business up for success, and equipment
financing helps companies make this investment without impacting
business in the short run. Machinery
finance facilitates businesses to invest in the latest technology and
avoid obsolescence of machinery while building resilience in the business.
3. Limited upfront investment: Given the pandemic enforced cash constraints,
equipment financing could be an easier approach for businesses with negligible
budgets to modernize their equipment. Instead of investing upfront, companies
can make small monthly payments while using the latest machinery.
Additionally, equipment financingloans, such
as Tata Capital, allow customers to customize their repayment schedule to align
with their cash flow scenario. Such flexibility helps businesses plan long-term
investments in a phased manner without adding stress to the limited cashflows.
4. Free up credit lines: One of the direct consequences of COVID-19 on businesses is lack of credit. Companies of all sizes struggle to make ends meet with limited cash reserves drying up faster as the pandemic prolongs. Instead of using up standard business loans to purchase new equipment, accessing equipment financing could free up traditional credit lines that can be used to invest in the business’s day-to-day operations.
5. Option to lease instead of outright purchase: Alternatively, if businesses are not convinced of
their investment returns, there is an option to rent instead of purchasing
long-term assets. Machinery can be leased for monthly rental payments for a
defined tenure through an operating or financial lease. The monthly rentals can
be shown as expenses out of the P&L, reducing taxable income and generating
tax savings. Given the current crisis, equipment
leasingoffered by Tata Capital could be an effective
strategy to benefit from the latest technological advancements without making a
long-term commitment. Businesses also have the choice to purchase the equipment
at the end of the lease tenure.
6. No additional collateral needed: The best part of equipment financing is that it does not require other
collateral, unlike conventional business loans. In equipment loans, the asset procured can be the collateral in
itself, reducing the burden on small businesses with limited assets to
hypothecate for financing. Companies could invest the freed-up collateral and
excess capital that is no longer needed upfront to meet other business
priorities.
Additional Read: Corporate Loan restructuring. Will it be a Boon or a Bane for the Economy?
Equipment financing offers
many benefits to businesses looking to navigate the current crisis and revive
post the pandemic. Tata Capital’s digital platform provides SMEs and MSMEs with
access to equipment
loans up to 100 Lacs in no time with limited documentation requirements.
Increase your capacity, enhance your efficiency, and respond to market demands
faster at the comfort and safety of your home by applying to our equipment loans.
29 October 2020
4 mins read
