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Tata Capital > Blog > Equipment Finance > All you need to know about industrial equipment loans

Equipment Finance

All you need to know about industrial equipment loans

All you need to know about industrial equipment loans

The quality of equipment and machinery directly impacts the performance of manufacturing businesses. However, investment in new machinery and upgrading to technologically advanced industrial equipment could be a costly affair. Furthermore, with today’s advancements in technology and innovation, such investments are needed more frequently to stay up to date. 

Equipment loans can help businesses to invest in their equipment easily without impacting capital reserves. If you are considering taking an industrial equipment loan, here is what you need to know: 

You could buy or lease equipment for business. 

When the business owner purchases and accesses financing for the equipment, the business owns and maintains that equipment. Equipment loans help to finance the purchase of the equipment. In situations where the equipment is crucial for the enterprise, and there are lower chances of obsolescence, this could be an option. 

The alternative scenario is to lease the latest equipment rather than purchase it upfront. When the equipment is leased, the company pays a periodic payment as lease rentals to use the equipment. The ownership remains with the lessor. However, the lease could offer a purchase option at the end of the tenure. This approach is often used in cases where the machinery needs to be frequently upgraded; the business has seasonal fluctuations or a limited budget for investing in new machinery. Leasing safeguards the company’s smooth functioning by ensuring the availability of the latest machinery at low monthly outflows. 

Your cash flows matter 

Cash flow management is the crux of any business. An equipment loan can increase liquidity and help maintain funds for healthy cash flows in the company. A loan or a lease can help a business finance additional equipment that it could not have otherwise afforded. A loan also frees up capital that can be invested in expanding the business and generating more revenue, thereby positively impacting the cash flow.

Assess the needs of the business

Before you take an equipment loan, it is crucial to consider your business’s unique needs and requirements. How efficient is your current machinery? Are you looking at purchasing used machinery or a new one? How will the new machine impact productivity? If you buy new machinery, have you done the research required for the various buying options available? Where will you place the machine? What kind of maintenance is needed? 

Most importantly, how does the equipment you wish to purchase align with the goals of your business? You need to deliberate on all these points before applying for an equipment loan. 

Additional Read: What Vital Role does Equipment Financing Play in Reviving Business?

Evaluate loan sources 

There are several establishments today that offer equipment financing and leasing. However, be sure to verify their reputation, credibility, and trustworthiness before obtaining a loan for your machinery. 

Equipment dealers sometimes offer in-house financing or partner with leading financial institutions like Tata Capital. With our expertise, widespread reach, and various OEM tie-ups, Tata Capital is uniquely positioned to offer businesses customized financing terms and competitive interest rates. The entire process is digitized to ensure quick turnaround and convenience for both small businesses and large corporations.  

Additional Read: How to choose an equipment finance company in India?

Obtain a good deal 

Equipment loans often come with a better deal with flexible repayment terms and lower interest rates than traditional financing. Moreover, for some niche industries, there may be tax benefits for the lump-sum purchase of equipment. Additionally, no incremental collateral is required for these loans as the underlying equipment itself backs equipment loans. 

Before proceeding with the financing, it is essential to consider the terms specific to your loan. What is the loan to equipment value percentage? Any additional collateral needed? What is the interest rate? Are there any hidden charges? For specifics in your business context, it is best to consult Tata Capital equipment financing experts to help you obtain the best deal. 

Moreover, before reaching out to financial institutions, make sure to get all your documents in place before you apply for the loan. While the exact list may differ depending on the financier, generally speaking, you would require identity proof, address proof, credit reports, cash flow statements, balance sheets, and bank statements, to name a few. 

Industrial equipment loans can go a long way in ensuring a smooth flow of funds in a business. It is pertinent to consult an expert, formulate, and structure a financing proposal that will optimize the company’s requirements. Reach out to our equipment finance experts for more customized guidance for your business requirements.

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