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.
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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 Build Resilient Businesses: While it is easy to postpone CAPEX plans amidst a crisis, outdated machinery has consequences on business that cannot be overlooked.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.
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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.