State-of-the-art equipment is the mainstay of business growth. Whether it is upgrading current equipment or investing in a new one, it can propel the business forward. There are several ways to access equipment. You could make a forthright purchase, or you could lease it. For both these options, you could avail of existing business resources or take a loan. With options galore, it can become quite confusing for the business owner to decide that facilitates optimum use of resources.
Here are the different ways by which you can get access to the right equipment for your business:
Outright purchase
One of the most obvious ways is to use existing funds for purchasing the equipment or asset. This alternative usually is apt for cash-rich companies, where investing in an asset will not block finance for working capital and business operations. Additionally, it is suitable for procuring long-term equipment intrinsic to the business and does not require frequent upgrading.
However, if your company does not have the capital to make an outright purchase, you can opt for 3 different kinds of financing to procure the same equipment:
Term loans
A term loan is generally used for a specific purpose and refers to one-time financing with set repayment terms. Businesses use term loans to expand plant and machinery, extend services to new geographies, or acquire companies for horizontal or vertical integration. Suppose acquisition of new equipment is to be accompanied by other expenses such as acquiring land and building, construction expenses, wages, and more. In that case, a term loan could help finance the entire project.
If it is just the equipment you need for your business, that can be financed in 2 ways depending on whether you are looking to purchase or lease your assets.
Equipment loans can be used to finance your business equipment. With lower interest rates than other business loans, these are a good bet if you specifically want the finance solely for equipment purchase. A loan would help increase liquidity for regular business expenses and maintain a healthy cash-flow better.
In this case, the business uses the equipment purchased as collateral and borrows an advance from financial institutions. Equipment loans allow the company to own and maintain the equipment right from the date of purchase. Businesses can also benefit from the tax benefits of a lump-sum purchase.
In business equipment financing, loans are backed by the equipment itself, and there is no requirement for additional collateral. This added advantage makes it is easier to procure and hassle-free compared to traditional financing alternatives.
It is advisable to take a loan for outright purchase when the machine is expected to serve for the very long-term and does not require many upgrades. A reasonable question to consider will be if the life span of the equipment exceeds the loan tenure. At Tata Capital, we are partnered with leading OEMs to offer competitive equipment financing solutions to our customers.
Leasing equipment involves a periodic payment for a machine or equipment, at the end of which the business owner could either exchange or retain the asset after factoring in the depreciation.
Leasing can be a good option for businesses that require frequent upgrading of machinery with the latest technology. For example, a company may use equipment leasing finance to rent laptops for work-from-home for employees during a specific time-bound period such as the lockdown. Or, construction companies could lease machinery for a particular project.
No collaterals are needed to access equipment via leasing. Some leasing arrangements take care of maintenance issues since periodic maintenance could be a part of the leasing agreement. Since the lease rentals are considered as operational costs, they are tax-deductible expenditures.
There are different types of leasing arrangements that work for various situations, all dependent on the company and the industry. For example, a capital lease provides a buyout clause, while an operating lease allows you to use equipment as per need. Reach out to our leasing experts for customized leasing solutions for your business.
The best machinery and equipment ensures the smooth functioning of the business and helps take it to the next level. However, with many different options for accessing business equipment, it helps to have informed guidance.
At Tata Capital, our vast experience across various business and industrial areas helps us design curated offerings best suited for businesses of all sizes. No matter what kind of asset or equipment you need, we help you find the right type of finance for it!
19 March 2021
4 mins read
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