Entrepreneurs often buy equipment on credit. The money issued by the bank cannot be spent on other needs. In this article, we will consider the features of issuing a loan for equipment to a business.
A bank loan for a small business
Bank loans are the most common source of external business financing. To receive small business equipment loans, the borrower must have a good credit history, have all the necessary financial statements, his business must function successfully for a long period of time, and most importantly, the applicant must provide collateral. Banks are more willing to give loans secured by deposits or real estate (one-room apartments in new buildings are especially popular since they are quickly sold). It is much more difficult to get money on the security of land, a car, or equipment.
Conditions for receiving money
To borrow money for the purchase of equipment, the entrepreneur must provide the bank with information that justifies the need for the purchase and information about the supplier. It should be noted that the purchased equipment immediately becomes collateral for the loan. That is, in case of non-repayment of the debt to the bank, it is sold at auction. Other liquid property (industrial buildings or transport) also acts as collateral.
If you want to take a large amount at a low interest rate, get ready that the banking organization will require an initial deposit of 15-20% of the loan amount.
Not all entrepreneurs can get commercial equipment loans secured by the equipment. Banking organizations set requirements for borrowers:
- ID of South Africa citizen;
- absence of delays and debts to banking organizations;
- be 23-70 years old;
- reliable financial position of the company;
- conducting business over six months.
Loan for the purchase of equipment for a small business
For business development, it is necessary to increase production capacity, including through new technology. It can be beneficial to buy equipment on credit because:
- it is not required to withdraw a large sum from the business at a time;
- while the borrower repays the equipment leasing loans, the operating equipment is already making a profit;
- you can find the farm equipment loans or heavy equipment loans without collateral for your own property – in this case, the money is issued against the security of the purchased equipment;
- there are loans with an extended term of up to 15 years.
Small and medium-sized businesses operating in priority sectors of the economy can count on loans at a reduced rate.
When offering equipment loans for small business, banks may have different requirements for the purchased items. Some finance the purchase of any equipment and even provide equipment loans for bad credit (rarely), others have conditions for its type, year of manufacture, as well as restrictions on the manufacturer and seller.
Credit unions are a kind of alternative to banks. To get the equipment loans from such an organization, you must become a member by paying the membership and share fees. Then you can use the services of the credit union on an equal basis with the rest of its depositors and take out a loan to develop your business. Loan processing in a credit union is much easier than in a bank. You do not have to provide a full package of documents, and if you are late in paying off the personal equipment loans, then the union’s management can provide you with a deferral.
It should be noted that interest rates in credit unions are much higher than in banks, and vary from 30% to 50% per annum. The maximum loan term is a year. In addition, credit unions do not issue large loans, these organizations help to quickly use financing to solve urgent problems that an entrepreneur may face. Also, sometimes the credit unions are the only way to receive bad credit equipment loans. Still, you should not consider the credit union as a source of medium or long-term equipment loans for startup business.