Maximum Loan Amount
In many industries like construction, engineering or lumbering, business cannot operate without the necessary equipment. Whether your business sells a product or provides a service, you will need to have the proper equipment to keep the business in operation.
Over time, equipment will need to be fixed, maintained or replaced, which can cost a lot of money and put a strain on your company’s cash flow, especially for specialized equipment that serve a niche industry.
However, with equipment financing, you will be able to get the equipment that your business needs and protect your company’s cash flow at the same time.
What is Equipment Financing?
Equipment financing is a business financing product that provides a business with capital to purchase equipment. In Singapore, most lending institutions will provide you with up to 90% of the equipment’s purchase price or valuation.
The equipment will serve as collateral for the equipment loan. This means that if you fail to repay the loan, the lending institution reserves the right to seize the purchased equipment, where it will liquidated to repay the balance of the outstanding loan amount plus any additional costs.
An equipment loan is usually a fast and convenient way of securing financing for most types of equipment. Equipment financing interest rates also tend to be lower than a business term loan because it is a secured loan.
- Fast access capital
- Low interest rate
- High chance of approval as equipment serves as collateral
- A lot of paperwork
- Equipment could become obsolete by the time loan is repaid
- Lending institutions can be stringent about the type of equipment they are willing to finance
Can I Qualify For Equipment Financing?
Most businesses can qualify for equipment financing in Singapore.
The real question is HOW MUCH can you qualify for? That will be largely dependent on the type of equipment you want to purchase, cash flow of your business, current financial commitments, your company’s financial history and your personal credit rating.
If your personal credit rating is less than ideal, there is still a good chance of approval as an equipment loan is a secured loan. On top of that, you could also offer to include an additional guarantor to the loan.
The truth is that most lending institutions are mainly concerned with the equipment that is securing the loan and your company’s cash flow. If the equipment that you want to purchase is essential to the business, value-retaining and resalable, most financial institutions will be willing to work with you.
How To Apply?
An equipment loan is relatively easy to apply for, depending on the financial institution that you are working with. Most financial institutions will request for the standard documents that will reflect the financial health of your business, existing credit exposure and your personal credit rating.
On on of that, you will also need to provide all the information about the equipment that you want to purchase and a quotation from the equipment vendor that reflects the equipment cost.
Documents to prepare:
- Bank statements over the last 6 months
- Financial statements over the last 2 years
- National Registration Identity Card or Passport
- Income tax documents
- Credit Bureau Report
- Equipment quotation from vendor
How Does Equipment Financing Work?
An equipment loan is extended to a business that needs to purchase equipment such as a crane, computers or any other machinery, but does not have sufficient cash flow to secure the purchase.
In most cases, an institutional lender or bank will extend a business loan of up to 90% of the equipment value or purchase price (up to 100% in some cases) to front the cost purchasing the equipment. Your company will then repay the equipment loan, with interest, on a monthly basis over a period of up to 5 years.
Largely dependent on the financial health of your company, your personal credit rating, existing financial commitments of your business and cash flow projections, there are many banks and institutional lenders in Singapore that offer a wide variety of financing products for equipment.
Get Your Equipment Loan
Should I Get An Equipment Loan?
The thing about financing for equipment is that it is mostly ideal for only a few types of businesses.
To elaborate further, it would make sense to get an equipment loan only IF there was a real need for a particular equipment that will be utilised for a long time. Otherwise, there is a risk that the equipment could become obsolete before the loan tenure is up.
Typically, the only caveat when applying for an equipment loan is that you should have sufficient funds ready to make down payment of between 10% – 20% of the equipment cost, depending on how much your lending institution is willing to loan you.
It is important to note that if an equipment is going to be outdated and obsolete before the end of your loan term, then a loan with your equipment as collateral may not be the best option for you.
In a situation where your company needs an equipment urgently, but does not yet have a robust financial history, an equipment lease is likely to be a better fit. An equipment lease is a good option for items that do not have a long useful life, or items that need to be replaced often.
Equipment Financing vs Equipment Leasing
In case you were wondering, there are other financing options to get the equipment that your business needs.
With cases where the necessary equipment has a short utility span, many companies will choose equipment leasing. As you can figure, the disadvantage of equipment leasing is that you will not have ownership over the equipment.
With an equipment loan, you will own the equipment after the loan has been repaid.
So if you know that your business will be utilising an equipment for a long time to come, then equipment financing would be the better option. But if you only need an equipment for a short and limited period, then equipment leasing would be the better option.
Equipment Loan Interest Rates
As with any form of debt financing, the loan will always cost more than making an outright purchase. However, in most cases, there is usually a need for additional capital in order to purchase an equipment that your business requires.
Even if you had enough capital to make an outright purchase, it would make sense to make monthly payments as it helps to preserve cash flow, and your business to remain more liquid and secure.
As with most term loans, there will be the choice of a long-term or a short-term equipment loan, which can vary in tenure from 6 months to 5 years.
Interest rates can vary from about 1.8% to 2.5% percent annually, depending on the lending institution that you are working with, along with various other factors.
Most financiers will be able to finance up to 90% of the equipment value, although subject to credit review. This would essentially mean that companies are usually expected to make a 10% down payment before a loan is even approved.
In fact, in proportion to the value of the equipment, the larger the down payment, the lower the interest rates. Here at Capable Loans, we always advice that before taking up a loan, you should always find out the cost of funds. More than just interest rates, financiers will always charge borrowers with a processing fee, application fee, or even a late repayment fee.
It is imperative that you understand the contract and agreement that you are going into. Be sure to make a habit of reading all contracts thoroughly so you are aware of all added expenses and how it can affect your profit margins and cash flow. If you do not feel comfortable with the financing arrangement at any point, remember that you can always keep searching for a better deal as equipment loans can vary in rates between financial institutions.
It is also good to keep in mind that the all interest paid on an equipment loan is tax deductible, which greatly reduces the cost of financing your equipment.