What is Equipment Financing?
Equipment financing is a business financing product that gives business capital to purchase equipment. In Singapore, most lending institutions will give you up to 90% of the equipment’s purchase price or valuation.
The equipment will serve as collateral for the loan. This means that if you fail to pay the loan, the lending institution reserves the right to take the purchased equipment, where it will liquidate to repay the balance of the outstanding loan amount plus any extra costs. Typically, equipment loans are business loans with collateral.
An equipment loan is typically a fast & convenient way of ensuring financing for most types of equipment. Equipment loan interest rates also tend to be cheaper than a business term loan because it is a secured loan.
Features & Benefits
- Loan Amount: Up to 90% of equipment value
- Repayment Period: one – five years
- Interest Rate: 1.8 – 2.8% per annum
OCBC will pay your vendor immediately
Ownership of the asset will be transferred after the final installment
Attractive rates and flexible repayment period
Pros
- Fast access capital.
- Low-interest rate.
- High chance of approval as equipment serves as collateral.
Cons
- 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
How to Qualify for Equipment Loan?
Most companies can qualify for equipment financing in Singapore.
The real question is, HOW MUCH can you qualify? That will be largely dependent on the type of equipment you want to buy, the cash flow of your company, 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 great chance of approval as an equipment loan is a secured loan. On top of that, you could also try to include an extra guarantor in the loan.
The truth is that most lending institutions are mainly involved with the equipment that is securing the loan & your company’s cash flow. If the gear you want to purchase is important to the business, value-retaining & resalable, most financial institutions will be willing to work with you.
How to Apply?
In many industries like construction, engineering, or lumbering, businesses 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 serves 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.
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.
Eligibility requirements
Business registration | The company must be incorporated in Singapore for at least 2 years |
Business ownership | At least 30% Singaporean or PR shareholding |
Required Documents for Application
Documents to prepare:
- Bank statements over the last six (6) months
- Financial statements over the last two (2) years
- National Registration Identity Card or Passport
- Income tax documents
- Credit Bureau Report
- Equipment quotation from the vendor
How Does it Work?
An equipment loan is extended to a company that needs to purchase equipment such as a crane, computers, or any other machinery but does not have enough cash flow to secure the purchase.
In most cases, an institutional lender or bank will extend an SME loan of up to 90% of the equipment value or purchase price (up to 100% in some cases) to front the cost of purchasing the equipment. Your business will then repay the equipment loan, with interest, every month over up to 5 years.
Largely dependent on your company’s financial health, 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.
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About FR Capital
FR Capatal is a Singapore consultancy firm that helps SMEs to secure business loans from banks and financial institutions. We concentrate on SME finance, and through our expertise and network, we help clients secure funding with low-interest rates efficiently and hassle-free.