The Advantages and Disadvantages involved in availing of a Heavy Equipment Loan
The construction industry in India is one of the largest industries in the world. Most of business owners consider the construction industry to be a lucrative prospect of making money. When you are thinking of starting a construction company, there will be a need for the use of heavy equipment in the business. The heavy equipment is costly and will cost several lakh rupees. They are challenging to acquire for the small or medium-sized companies which have minimal resources. And this is where availing of a heavy equipment loan will become the most preferred option. It is essential to analyze if availing that loan will be beneficial for your business. To help you to make the right decision, here is a compilation of the advantages and disadvantages of the heavy equipment loan that will help you with the construction business.
Advantages of a Heavy Equipment Loan-
Listed below are the benefits of availing of a heavy equipment loan for the construction business.
- Getting money to purchase equipment- These loans will give instant access to funds or money for the purchase of heavy equipment. One need not worry about halting the business opportunities due to lack of funds as they provide immediate cash for purchases. Most of the financial lenders have a simple loan application process. You will be requested to submit the proof for business and ability to make the repayment of the loan. The processing of applications gets done within a short period, and you can have access to the money. Availing this loan is better than waiting for cash to purchase the equipment as it allows progress of work continuously.
- Resolving cash flow issues- The heavy equipment is quite expensive. When you make cash payments, it becomes difficult for small companies as there will be no enough funds for the purchase of expensive machinery and running daily operations. These loans require only a small down payment, and there is no worry about affecting the cash flow in your business. In the repayment of the loan, you will pay a small percentage of the amount every month for a predetermined period, and this will prevent from affecting your cash flow. Equipment financing is a brilliant solution for every small and medium-sized business that suffer from cash flow issues.
- Acquiring the equipment Quickly- When the application is processed, the funds will be immediately disbursed, and the purchase of equipment can be made quickly. It is advisable to look for the equipment sellers while applying for the loan as it will save time. You must do proper research about your needs and requirements so that you can purchase the right equipment for your need. It will make the availing of loan effective.
- No Additional Collateral- Most of the loans in the financial market will always require collateral for sanctioning of the loan. The collateral is an asset which will act as a security for the loan. When there is a default in repayment of the loan, the lender can seize the asset, sell it for recovering the money. The heavy equipment loans do not require any collateral as the equipment purchased itself acts as a collateral. The financial lender will take the machinery, sell it for recovering the loan balance in case of default.
- Enjoy Tax Deductions- The purchase of equipment allows you to enjoy the tax deductions as per section 179 of the IRS tax code. The companies will get deductions up to the full cost of the equipment that is purchased during the tax year. The qualifying items include heavy equipment for business usage. The savings from tax deductions can be very beneficial in expanding business operations.
- Flexible Payment Terms- The construction equipment loans have flexible terms and tenures. The loan repayment period varies depending on the value of the equipment. Small businesses will not be able to generate a considerable sum of money for machinery loans. These schemes will vary from one financial lender to another. There are monthly, quarterly, half-yearly, and annual payments. Pick up the tenure that will be most suitable for you.
- Improve construction business operations- The business owners cannot afford to purchase the heavy equipment such as excavator, grader, bulldozer, etc. and small equipment such as tractor, trencher, mini-excavator etc. They need the assistance of a heavy equipment loan to fund the purchase of any equipment. Availing of a heavy equipment loan will improve the business operations and in turn, lead to huge returns as well as productivity.
- Full Ownership of the Equipment- The equipment leasing will not allow the purchase of machinery. A loan will allow you to purchase the machinery. This will enable the full ownership of the vehicle, and after repaying the loan, you can rent it, sell it, or make money out of it. The equipment can be modified to suit individual needs.
Disadvantages of a heavy equipment loan-
Here are the drawbacks of getting the construction equipment for all your business purposes.
- Limited loan usage- The main disadvantage of availing of a heavy equipment loan is that you can only make use of it to purchase heavy equipment for your business. This will include things like excavator, grader, bulldozer, tractor, backhoe, loader, and trencher. The loan can only be used to buy heavy types of equipment and not any other purposes. It can be only used to buy equipment for the construction firm. There are other different types of loans, such as business loans to finance the purchases.
- Not suitable for Short-Term Equipment Use- When you avail a loan for the purchase of construction equipment, it will work beneficial only in the long term. It is a possible option for businesses which intend to make use of the machinery for many years. It can be financially wise to lease or rent the equipment for the given period. The cost of the rental is lower than one would pay for the machinery. When you need to modify the machinery for your business, you can purchase, use, and sell it for later purpose. You can also rent it to the other small construction businesses, make a profit and also recover the purchase cost.
- Loans are expensive in the longer run- When availing the loan, the amount you pay will be higher than that has been incurred for an upfront purchase. It is always smart to make the payment upfront for the equipment as it is the cheapest solution. When you are not able to raise the cash, availing the loan is the best alternative.
- One is Fully Responsible for the Equipment- It is a joy to have the full control of the usage of equipment purchased. There is a drawback that comes with this as you need more responsibility and caution. You will be held responsible for the equipment and the condition of it. When there are any necessary repairs, you are in charge of it. The regular servicing, as well as professional maintenance of the equipment, is mandatory. The equipment must be maintained in excellent condition. This becomes like a rental arrangement where the renting company takes care of the service as well as maintenance. You will end up allocating more cash in the long run to maintain the machinery.
Importance of the equipment loan-
With all the benefits, advantages, and disadvantages of the equipment loan listed above, you will be able to decide on the importance of availing them for business purposes. The choice of availing of the loan must depend on various factors, and it will vary from one business to another. It is advisable to understand the need for the equipment for short-term or long-term use. Always check if the business has the resources for an upfront purchase. The maintenance of the equipment must be considered as it will involve a certain amount of costs. It is always very beneficial to avail of a heavy equipment loan to improvise on your production and expanding your business dreams. The financial market now offers plenty of opportunities in the purchase of equipment with attractive offers and affordable rates.