Equipment Loan

Frequently Asked Questions on Equipment Loan
  • Who can avail of equipment loans?

    Equipment Loans can be availed by any business purchasing an equipment from a company or a registered dealer of a company. The lenders on the Artha Credit platform prefer to make payment for the purchase directly to the equipment manufacturer or an authorized agent of the manufacturer, hence the loan request should be raised before the equipment has been purchased and paid for.

  • Is collateral security required for equipment loans?

    The equipment which is being financed through the loan will be hypothecated to the lender. In addition, the lenders may require additional collateral from the borrower depending on the risk appetite and internal guidelines of the lender.

  • How much loan can be raised?

    Businesses and entrepreneurs can raise funds up to 80% of the outstanding purchase value of the equipment.

  • What is the maximum tenor of equipment loans that can be availed?

    A borrower can avail an equipment loan for a maximum tenor of 5 years from the date of disbursement. However, the actual tenor of the loan will depend on the equipment being financed, the amount of the loan, the market standards regarding similar loans, the risk appetite of the lenders and other considerations that the lenders may have in determining the terms of the loan.

  • Which are the common industries that use equipment loans?

    It is suitable for a wide range of industries like construction, restaurants, garment factories, transport and logistics industries , medical industry etc.

  • What are the advantages of equipment loans?

    The biggest advantage of equipment loans is the ability to purchase high-cost items which are difficult to fund upfront through a loan which allows the business to scale up and grow revenue rapidly. It mainly helps companies make longer term investment in their business without raising costly loans or equity financing. It is much easier and cheaper than applying for a business loan from a bank.

Equipment Loan process explained
  • What Is an equipment loan?

    Equipment financing refers to a loan used to purchase business-related equipment, such as a restaurant oven, a lathe machine or a copier scanner. Equipment loans provide for periodic payments that include interest and principal over a fixed term - usually a period of 3 to 5 years. Along with the amount, the repayment schedule of the loan is also pre-determined. As security for the loan, the lender may require a lien on the equipment as collateral against your debt. Once the loan is paid in full, the borrower owns the equipment free of any lien. These loans are often tailor-made to suit the financial needs of the businesses.

  • Why is equipment loan needed?

    SME businesses need to acquire new machinery from time to time to upgrade or replace the equipment needed to run their business on a day-to-day basis. These equipments need to be obtained in a smooth and speedy manner and on economically favorable terms to quickly scale up or replace existing machinery. Purchasing equipment outright can put substantial strain on the cash flow of the business. Equipment financing may be the ideal solution to keep the SME business functioning at optimal performance or to expand to meet increasing demand.

  • How does the equipment loan work?

    Under equipment loan facility, the SME can receive funding for equipment purchases as a longer-term loan. Here is how the process works:
    The SME identifies an equipment which it needs to purchase. Since the cost of the equipment is usually high, the Business would typically prefer to fund the purchase through a term loan. The Business therefore gets a proforma invoice from the manufacturer / reseller selling the equipment.

    At the time of submitting the loan application form, the SME needs to upload the proforma invoice (as proof of the cost of the equipment) for the equipment as received from the manufacturer or distributor of the same. The borrower should also indicate in the loan application any additional collateral the SME may offer the lender apart from the machinery which is being financed through the loan.

    The SME typically repays the equipment loan in equated monthly instalments over the tenor of the loan. The instalments include repayment of principal amount as well as interest charged on the outstanding amount of the loan. If the tenor for the loan is 4 years, the borrower has to repay the loan in 48 instalments (4 X12=48 months).

  • Why is Equipment Loan helpful?
    Advantages of equipment loan

    • Relatively inexpensive - Equipment loans are the least expensive source of longer-term finance.
    • Tax reduction - In certain jurisdictions and for certain equipment, the amount of interest paid on these equipment loans may qualify as tax-deductible expenditure.
    • Simple eligibility requirements and hassle-free documentation - The loan criteria is easy to meet with submission of a few essential documents, making the whole process of availing the loan hassle-free.

    Disadvantages of equipment loans

    Though the term loans are considered one of the best sources for outside credit; businesses should be judicious in availing such loans. A few disadvantages of equipment loans are:

    • Commitment-Yearly interest installments, and reimbursement of the principal amount is mandatory for the borrower. The inability of not meeting these installments will lead to appropriation of the equipment by the lender and other legal action.
    • Risk -Term credits, like any other kind of debt financing, also increase the company's financial risk.

  • Factors on which an equipment loan depends:

    Equipment loans are used to purchase machinery and the terms of the loans are based on factors like the amount of funding required by the business, the repayment capacity of the borrower and the financial health of the company in terms of cash flow and the amount of upfront payment made by the borrowing entity. The rates of interest charged are higher than that of short-term loans or invoice financing facilities. Due to the higher ticket size of loans and higher associated risks, most of the long-term equipment loans are secured, i.e. they require collateral.

  • Documents required to avail Equipment Loan

    Here is a list of documents required by the lender to provide Equipment Loan:

    • Address Proof of business and business Owner
    • Business Registration Proof and ID proof of Owner
    • Sales Tax registration certificate
    • Filed Sales Tax Returns for 1 year
    • Income Tax ID for the business and business owner
    • Six months’ bank statement for the business and the business owner
    • One years’ Audited financial statements of the business
    • Invoice / proforma invoice for the equipment being purchased
    • Documents pertaining to any collateral being offered (if applicable)