Many businesses require loans for various purposes, and as maintenance and repair costs are surging through the roof and are always a liability for the company, they can opt for a ‘machinery loan’. Machinery Loans or equipment loans, simply stated, is a loan instrument that is used by companies to minimize their liabilities of buying, repairing, upgrading, and maintaining their machinery. This is an extremely useful tool for those businesses that are not cash-rich and for those who wouldn’t want to compromise on their working capital.
Machinery finance is one of the most helpful credit facilities that a company can leverage. The appropriate machinery may work magic for your company. It not only speeds up processes, but it also saves a lot of money and boosts productivity by helping you get hands-on good equipment. If you’re looking to acquire upgraded machinery but are unsure how to finance it, then equipment loans are the thing for you and your business!
Let’s look at what machinery loans really are and what are some of the ways by which this can be of tremendous importance for your business.
Machinery Loan: The Basics
Machinery financing is a method of buying equipment or technology by borrowing money from commercial banks or other debt institutions. The asset that the company wants to buy can be anything from electronic products, heavy machinery for production companies, technologies acquired or even stationery material for employees.
This instrument is especially helpful because it helps in increasing production and improving the efficiency of a company among other benefits without having to commit a large sum of money in one go.
If you are an entrepreneur starting out, then you would know very well how important machinery, equipment or technology is for the better functioning of a company. Moreover, you would know exactly how big of a hole it burns in your pocket when you try to pay the lump sum. This is the reason companies don’t mind a little extra over an extended period instead of paying off the entire bill in one go.
5 Reasons Why Machinery Loan is Important
- Easy on your pocket
Instead of throwing money on new machinery and repairing them, businesses can maintain a better cash flow by paying for these liabilities in instalments. This makes the entire process easier on the pockets of companies and it doesn’t stress them out due to other debts that they may have.
- More attractive balance sheets
If a company has an attractive balance sheet, that is has sufficient cash flow for running operations, then that can have two major benefits: attracting investors and reducing tax liabilities. An investor or a venture capitalist is always looking at how cash-rich a company is so that the risk of investment for him gets reduced. If a company spends money on liabilities like machinery repair, then putting money in such businesses becomes a risky business.
- Better time management
Even more than money, well to do companies give more importance to time. As machinery finance is a quick funding get, companies always prefer it. Moreover, after the money has been used to upgrade or repair the equipment, the companies can now save even more time in production or operations as now the system can run more efficiently.
- Tax savings
Tax management is one of the biggest priorities for businesses. First debt is always helpful for a company to save money on taxes, so companies always try to go for this option, as is the case with machinery debt. Secondly, the money saved on taxes can be better utilised by companies to grow their business and make their operations more efficient. This is already done by upgrading the machinery, and the tax savings just add to the bonus.
- Ownership remains with you
The thing that business owners fear the most is losing the equity in their own company. Even more so, they fear losing so much equity that they lose control over their own company. With any debt instrument, the biggest advantage is that the business owners don’t have to put money from their own pockets, and as many entrepreneurs don’t take a salary and pay off their bills by selling some of their equity to acquire cash, these business owners won’t have to do so anymore.
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There is no denying the fact that debt instruments are of tremendous benefit to businesses, especially MSMEs. There are tough times in every company and if there is a small business, then during the times when cash is tight, these debt instruments can be helpful in a million ways.
The importance of machinery loans simply cannot be overlooked as the benefits are countless. Running a successful business is a challenging and daunting task, but it is doable if you have a solid base (cash in hand) for rainy days. This base can be formed by having good quality machinery and equipment to run your operations smoothly.