Equipment loans should be secured early to avoid worries down the road

Image credit: Marco Verch l Flickr

Startups can ease financial worries down the road by securing equipment loans early.

By: Hitesh Khan/

Startup entrepreneurs are increasingly challenged to secure equipment loans to foster their companies’ growth.

Some banks offer businesses financing of up to 90 per cent with a tenor of up to 5 years for equipment loans. Startups may also secure equipment loans if they want to do hire purchase.

equipment loans
Image credit: Marco Verch l Flickr

The benefit of getting equipment loans through hire purchase is, the entrepreneur will be able to spread out their payment over a fixed period of time, which allows them to reduce their upfront costs while giving them the flexibility to enjoy the use of the equipment immediately.

There are several key differences in securing your equipment with a term loan or hire purchase. Hire purchases are different from term loans in that with term loans, the ownership of the goods starts from the day you receive the loan. But with hire purchases, the ownership of the equipment only starts once the final instalment has been paid.

Also the interest rates are different for term loans and hire purchases. Hire purchases allows the borrower to pay a flat interest rate, while most term loans would usually carry a floating floating-rate.

For hire purchases, the documentation of terms are governed by the Hire-Purchase Act or Hire-Purchase Common Law, whereas for term loans, the documentation of terms are contained in the loan agreement and the bank takes a charge over the goods. When the bank takes charge over the goods its registration of legal interest is registered as an Hire-Purchase owner with the HP Association and/or Asset Financing and Leasing Association of Singapore. But with term loans, the lender registers legal interests with Accounting and Corporate Regulatory Authority (ACRA).

Perhaps the most notable consideration for startups would be, for hire purchases, no legal fees and stamp duty are applicable for hire purchase equipment loans, where for term loans, stamp duty applies. Legal fees may apply for term loans as well.

Most lenders use different types of interest rates for giving equipment loans. Most offer flat and fixed interest rate packages for Equipment Financing loans. The borrower may however also apply for interest rate that are pegged to the bank’s prime rate or to Association of Banks in Singapore’s (ABS) Singapore Interbank Offered Rate (SIBOR).

ABS Benchmarks Administration Co Pte Ltd (ABS Co.) was setup in June 2013 specifically to own and administer the ABS Benchmarks in Singapore – the SIBOR, the Swap Offer Rate (SOR), the SGD Spot FX and the THB Spot FX. It is a fully owned subsidiary of the Association of Banks in Singapore (ABS). Thomson Reuters is the official Calculating Agent of the ABS Co SIBOR and SWAP Offer Rates.

SIBOR stands for Singapore Interbank Offered Rates. An individual Contributor Bank contributes the rate at which it could borrow funds, were it to do so by asking for and accepting the interbank offers in reasonable market size, just prior to 11:00 a.m. Singapore time.

SOR is defined as the synthetic rate for deposits in SGD, which represents the effective cost of borrowing the SGD synthetically by borrowing USD for the same maturity, and swap out the USD in return for the SGD.

Most borrowers of equipment loans may also wonder if they can make full prepayment on the outstanding amount and if they do will they be charged a fee. Most lenders allow for full prepayment, as it simply constitutes early termination of the hire purchase agreement. Most lenders do impose a nominal prepayment fee but they may require written notice one month prior to termination for equipment bought under hire purchase. Most financial institutions would not require written notice for commercial vehicles bought under hire purchase.

If you finance equipment with hire purchase you are required to take out an all-risks insurance policy up its prevailing market value. Similarly, commercial vehicles bought through hire purchase require a comprehensive insurance policy up to the prevailing market value.

Some lenders also finance machinery located overseas and this is to finance overseas expansions. Singapore registered businesses may finance their expansion overseas with the Internationalisation Finance Scheme (IFS), administered by International Enterpriese Singapore (IE Singapore). This scheme allows the businesses to borrow up to SGD 30 million.

To be eligible for this scheme, your business’s global HQ must be anchored in Singapore and your business must satisfy strategic business functions in Singapore. Besides the requirement that the loan must be used to support your expansion overseas, your annual turnover must not exceed SGD 300 million for non-trading companies, or SGD 500 million for trading companies (where more than 50% of your turnover comes from buying and selling goods). Your overseas business must also complement your core operations and result in an economic benefit to Singapore.

How to Secure Equipment Loans Quickly

If you are searching for Equipment loans, the loan consultants at iCompareLoan can set you up on a path that can get you a it in a quick and seamless manner. Our loan consultants have close links with the best lenders in town and can help you compare various loans and settle for a package that best suits your needs. Find out money saving tips here.

Our Affordability Tools help you make better property buying decisions. iCompareLoan Calculators help you ascertain the fair value of a property and find properties below market value in Singapore.

To find out more about Peer to peer lending versus that of SME loans so as to make an informed decision: SME Loans or Peer-to-peer (P2P) Lending – What is the difference?

Contact us for advice on a new SME loans.

Contact us for home loan or refinancing advice.

Written by Ravi Chandran


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