Business Loans Guide
A guide to machinery finance
If your business relies on machinery, it can be difficult to decide on the best way to fund its purchase. If you have a large sum of working capital available it may be possible to pay for machinery upfront, but this is not always the case.
Your business may be just starting out, or an existing machine could require replacing unexpectedly. If this is the situation, there are a variety of machinery finance options which could help you buy the machinery you need within just 24 hours.
What types of plant finance are available
Here at Business Comparison, we specialise in helping every type of business gain the equipment financing they require. Whether you run a construction firm, engineering company, or a manufacturing business, we know how important it is to have the latest and most efficient machinery.
By providing a variety of machinery loan options, we can provide everything from machine tool financing to plant and machinery finance.
One of the most popular options is asset finance, as it does not require any capital from the business when taking out the loan. Instead, your cash flow remains stable and you can repay the finance in affordable instalments. This versatile form of lending is used by both small and large businesses, with amounts available from just £1,000 to a maximum of £20,000,000.
There are many forms of asset finance available such as, hire purchase arrangements, refinancing, finance leases and operating leases. A hire purchase arrangement will allow you to spread the cost over an agreed repayment period, with you then being given the option to purchase the machine outright. A hire purchase agreement is ideal for purchasing vehicles with a potential resale value and the machine is classed as an asset for tax efficiency purposes.
Refinancing is a quick way to release the value of assets which you already own, enabling you to fund the payment of new machinery. The lender purchases the asset from you and then refinances it back to you, with repayments aligned to the income which the machine generates. This form of machinery finance can provide you with the cash injection required to purchase machinery, which may not be accessible via other hire purchase and leasing agreements.
A finance lease agreement will enable you to use machinery without having to purchase it upfront. Instead, you pay to lease the machine over a flexible period which can be arranged to suit your requirements and cash flow. At the end of the plant machinery finance term you can continue to hire the machine for a secondary lease period, sell the machine and retain a percentage of the income, or return the machinery to the provider. It is this flexible repayment period and the ability to receive some cash back which makes this form of machinery finance so popular.
The final form of machinery finance is an operating lease, which is very similar to a finance lease. The main difference between the two forms of finance is that it is only provided for a part of the asset’s life. As the rental cost is based on the original cost of purchasing and the residual value, you benefit from a reduced rental charge. Your business is able to use the asset for as long as you need it, but you do not have to dispose or sell the machine.
How to compare machinery finance options
As machinery finance is available in a variety of forms, it can be time-consuming and difficult to find the ideal option for your business. To make the process as easy as possible we have developed a finance finder tool, which will compare the available machinery finance based on a series of questions you answer.
Our lenders include high street banks, online lenders, challenger banks and alternative providers of finance, who all have different criteria which their borrowers must fit. By asking you questions such as how much you need to borrow, your annual turnover, the required payment period and whether you have assets to provide as security, our system will search the panel of lenders to provide you with a list of potential machinery finance options.
This makes it simple for you to compare the proposed interest charges and terms, although we will help you find the most competitive loans available. It is worth paying close attention to any additional costs which could significantly impact how expensive the machinery finance is overall. For example, the majority of lenders will charge fees for arranging the loan, missing payments and even repaying any outstanding amount early.
How does the application process for machinery finance work?
Once you have selected your preferred form of finance, the application process can be completed within just a few minutes and the funds could be released within 24 hours. To ensure the underwriting is quick and straightforward you should prepare your financial documents in advance.
The lender will be looking to build up a complete picture of your business, including the financial aspects, trading patterns and plans for the future. The ideal information to have to hand includes; accounts which have been filed with Companies House, bank statements, evidence of trading, proof of identification and your annual business turnover and profit.
What is the eligibility criteria for machinery finance?
The eligibility for machinery finance will depend on the individual lender, although most will consider factors such as the businesses credit rating, the amount you need to borrow, desired repayment term, trading period and whether the business is profitable.
These factors will be used to decide what risk is associated with lending to you. The lender will begin by examining your ability to repay the loan, according to your current financial situation and the future potential profit. They will consider any funds owed to you and also any debts which you have, so they understand your complete financial picture. If you operate as a sole trader or partnership, the lender will also review your own financial situation as you will be personally liable for the loan.
One of the most important factors which will be taken into account by almost every lender is your credit rating. If your business has a low credit rating with a history of missing payments, the lender is likely to decide that your application is high risk. If the lender decides to provide you with the machinery finance you require, it is likely that you will be charged a higher than standard interest rate.
Although, it may still be possible to borrow funds if you can reduce the risk by providing security or a personal guarantee. In most situations, asset finance is secured against the machine itself, although the lender may require you to provide additional security or take personal responsibility for the repayments through a personal guarantee. This could put your own personal assets and credit rating at risk, including your home and car.
If you would like to find out more about machinery finance and the various aspects available, our team are always on hand to explain the options to you. As specialists in comparing finance options and securing the most competitive loans available on the market, we will always assist you in finding and applying for the best machinery finance for your business. To find out more, please contact our experienced team today.