Purchasing Equipment grants can help fund small and medium sized enterprises who want assistance with purchasing capital equipment and machinery to make their operations run more smoothly and efficiently. A capital injection can help businesses buy equipment sooner or buy more expensive machinery than they would have been able to relying on their existing financial resources. More often than not this non-repayable money comes from a Government source or an enterprise support hub.
What do they pay for?
Businesses may seek grants to cover a range of specific purchasing equipment purposes, which are briefly outlined below.
- Asset Purchase – Funding to buy general assets for a business, including raw materials, stock and office equipment.
- Purchase New Machinery – Funding to buy new and enhanced plant, machinery and equipment for manufacturing and business process improvement activities.
- Capital Expenditure – Purchase of physical operational goods, such as IT equipment, software and licences.
- Hiring Capital Equipment – Hiring and leasing equipment and machinery that would otherwise be too expensive or not cost effective to purchase outright.
What alternative funding is available for purchasing equipment?
If businesses cannot readily access a grant in their sector or region that fits their needs for purchasing equipment then the alternative is to take on specialist loans, such as asset finance. This finance can either be accessed from a traditional lender, such as a bank or commercial finance specialist.
There are a number of types of asset finance loan products available based on your specific requirements.
- Hire Purchase – Pay for an asset in instalments by taking a loan with interest and gain full ownership of the item once you have made the final payment.
- Equipment Leasing – A lender buys an asset you require and rents it to you on a lease. At the end of a lease period, you are given the option to extend the lease, purchase the asset outright or upgrade to a new piece of equipment.
- Finance Leases – Get full use of an asset and pay for it over time, during the asset’s lifespan, but never own it outright. This can have tax and VAT benefits.
- Operating Leases – A rental agreement for a piece of equipment over a set term, with maintenance of the equipment handled by the lease company.
- Asset Refinancing – Secure a loan against valuable items in your business like buildings, vehicles or equipment.
What are the pros and cons of a loan vs a grant?
Grants – What are the Pros and Cons?
Advantages of taking a grant
- Grant funding is non repayable and means there is no pressure on business cash flow moving forward compared with repaying loans and their associated interest.
- Grant funding typically targets specific areas of business and can allow you to explore and expand new areas of your operation that previously have not been developed and made more efficient with new equipment and assets.
- If you are awarded a grant from a government backed scheme or enterprise support body, this is considered a vote of confidence from the awarding body in question and means they have backed your business proposition as one that is highly likely to succeed. Details of your receiving an award is often publicised in local press or trade publications and this can be used as a promotional tool to secure new business.
Disadvantages of taking a grant
- Grants usually only offer a percentage of total funding needed for a project, in many cases in the UK match funding of 50% is typical.
- Access to grants is highly competitive. As the money is free you will be competing against other businesses and will need to stand out from the rest of the applicants to be awarded funding.
- Grant funding pots are often restricted to specific sectors or regions, so it means if you do not operate within that sector or geographic region then you are not able to access the funding. Some areas and sectors have less funding than others.
- Grants often come with terms and conditions and restrictions, which means you are only allowed to spend the money on what you specifically applied for. Evidence must be provided to show where the money has gone and sometimes the grant is only released as a reimbursement after the project has been completed.
- It is harder for less established SMEs to access money from grants. More often than not a business needs a track record to prove they will make good use of the money and not see the project fail.
Loans – What are the Pros and Cons?
Advantages of taking a loan
- Loans will typically cover your entire project costs meaning you will not need to seek additional funding from elsewhere.
- Loan funding is flexible and can be used for anything in the business and there are typically no restrictions on what areas you may spend the money on that would otherwise be restricted if you were using a grant.
- Loans are not limited by sector and means that certain businesses traditionally excluded from grant opportunities, such as consumer facing cafés and retail outlets can more easily access this type of finance to buy new equipment to upgrade their businesses.
Disadvantages of taking a loan
- Whenever you take out asset finance, you must always make sure you can keep up with the monthly payments over a period of time with interest and this can put a strain on business cash flow in the future if trading conditions become tough. You also risk losing the equipment if you cannot keep up with payments.
- There are some cases where asset finance interest rates for less established businesses can be higher due to the greater level of risk for those without a proven track record. Businesses with a good relationship with their bank can typically negotiate to get a better interest rate on repayments.
- If you are trying to seek a loan when your business is already facing financial difficulties, there is a chance that you may be refused if your business is deemed too high a level of risk. Access to traditional commercial asset finance can also “dry up” when there are difficult economic conditions taking place across the UK.
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