How Construction Companies can benefit from Equipment Financing
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How Construction Companies Can Benefit from Equipment Financing

  • Highlights

  • Equipment financing helps preserving cash

  • Leasing an equipment brings good returns

  • Technology upgrades without huge cash outlays

  • Hedge against inflation, tax benefits and more

The global construction equipment finance market is expected to grow at a CAGR of 9.9% during 2016-2020 and construction companies can make the most of these opportunities.
However, running a construction business warrants a generous flow of capital, especially for availing the requisite equipment. Having the right and upgraded equipment is an indispensable and ongoing requirement, especially to expand your operations.
Equipment financing assists you in the below mentioned ways, helping your business achieve its operational goals:

# Conserving Capital

Large capital expenditures negatively affect cashflows and pose a financial risk, especially for small and medium enterprises. Opting for external finance for equipment, rather than spending cash saves you from spending towards an asset that might not offer immediate returns. The funds thus saved can be used in other areas of your business like. For example, buying raw materials or training your staff in new skill sets.
Equipment purchase decisions come with the odds that the asset might not be able to yield the desired return.

This can trigger inefficiencies and affect overall profitability and sustainability. On the other hand, lease financing towards equipment can be correlated with the productivity it brings about.
For example, say you fund the leasing of a new equipment for your project, at a monthly payment of Rs.10,000. The new equipment brings productivity in your processes and cost savings worth Rs.15,000 per month for two years:

Cash outflow towards lease for 2 years Rs. 10,000 x 24 = Rs. 240,000
Savings generated for 2 years Rs. 15,000 x 24 = Rs. 360,000
Your gain Rs. 120,000

After two years, when the equipment no longer brings returns, you can terminate your lease agreement. Thus, you pay just the optimal amount for the benefits you get. The cash thus preserved in the entire exercise can be used in further growth initiatives of your business.
On the other hand, had you financed the equipment entirely with internal cash, it is likely the investment wouldn’t be in line with your returns, given the equipment’s possibility of not performing for the expected time.

Additional Read: Top 3 Reasons For Engineers To Take An Equipment Loan

This conserved capital can be used in other areas of business like-
• Funding growth initiatives: Make strategic hires, increasing capacity, taking up new projects or integrating technology.
• Procure the latest equipment: Avail the latest equipment to leverage technological enhancements.
• Investment: Don’t miss out on other investment avenues which would increase your ROI.
To get access to a greater finance pool, one can also apply for an Engineer Loan offering funds up to Rs.15 lakh and help engineers meet various business expenses.

#Staying Up-to-Date With Technology

In today’s dynamic business environment, it is essential to have the right equipment with the latest technology. Upgraded equipment bring in:
•    -More efficiency in everyday operations
•    -Higher productivity
•    -Accelerated construction process by ensuring minimal or no breakdown
A modern business thrives on technological innovation and upgradation, more so for a construction company. While a Paver Block machine comes at around Rs.2,10,000, earth mover equipment like JCB 3D Super Buckhoe Loader costs around Rs.20 Lakh. So proper equipment financing can be used to avail the latest equipment to leverage tech enhancements.
However, many businesses, and particularly the construction sector, with its large outlays for certain equipment, are unable to afford the same to thrive and stay competitive. By funding equipment through term financing, they can acquire more and better equipment, which may be out of reach with a cash purchase. Thus, they can deploy equipment at a faster rate to respond to industry or technology changes.

Additional Read: How To Prepare An Engineering Business Plan_Ed

Top Business Opportunities for Mechanical Engineers

Uses of a Flexi Engineer Loan

# Quick Access To Funds

Equipment financing in most cases are executed and completed faster than traditional financing alternatives. This offers a customized financing solution designed to match the requirement and budget of the business. Another instance when construction owners can get quick funds is by applying for an Engineer Loan which offer a loan approval within 24 hours. This enables the business to expedite fund deployment to get most out of market opportunities.

# Forecasting Accurately

Equipment financing also enables construction companies to make more accurate budgets and forecasts. An Equipment Machinery Loan is designed to fit the conditions normal to a construction company. So, it is easier to match the repayment schedule with the cash flow of the business and get a better forecasting for future finances.

# Reducing Risk

Equipment acquisition comes with risks pertaining to:
•    -Equipment expertise
•    -Capital outlays
•    -Asset management
•    -Obsolescence
Overall, these risks become a burden for the business owner to carry. But financing eliminates many unnecessary risks and allows you to focus on your core business. Equipment financing, therefore, goes a long way in assisting construction businesses, contractors, and engineers in implementing their projects efficiently and profitably.
Equipment financing like other loans comes brings along with it:
- Tax advantages: Paying interest reduces your profits, thus reducing your tax burden.
- Increased purchasing power: Allows you to acquire more/high-end equipment.
- Hedge against inflation: You can finance your equipment needs without investing your current savings and delay your expenditure, thereby avoiding the risk of your current payments being devalued overtime due to inflation/financial risks.
- Increased responsiveness: You are ‘well-equipped’ to handle market/industry dynamism.

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