A synopsis on financing construction equipment rather than using cash.  Construction business is in a constant need of equipment in order to commute the materials. With the growing number of constructions there has been an exponential rise in the demand for equipment. This situation is a result of the rise in the economic uncertainty and hence has led to the rise of equipment financing as a key acquisition strategy. As the nature of the construction industry is equipment-intensive, there is a constant need for a variety of equipment ranging from heavy grade to compact equipment and attachments.Regardless of the size of the construction company, or even the economic market conditions, financing construction equipment rather than using hard cash might have significant benefits. Though there are many benefits that are associated with financing, there are many factors that are associated with this.Loan repayment instalments hold the Trump card “The ability to service loan repayment instalments from the earnings of the equipment will be a key factor in the success or failure of the equipment acquisition,” says Ranjan Das, National Product & Policy Head – Commercial, Magma Fincorp Limited. Das feels that understanding the revenue earning capability and the tentative schedule of receipt of bill payment should decide, when and how much amount of equipment financing is required.Das further adds that all this should be backed up by selection of equipment based on the deployment plan or capability and any available opportunities. “The first and foremost reason for choice of equipment must be correct identification of the deployment of the asset,” stresses Das. Sharing an example in support of his views, he says, “Deployment in quarrying or mining will have a different set of requirements compared to a general deployment in hiring segment for earthwork.”As per Das, if the deployment of the asset is across different usages, one should choose a more versatile asset from well established manufacturer with good coverage of machine servicing network and ease of availability of spare parts and consumables. He believes that only then will the customer correctly estimate the costs of operations, fuel cost, servicing cost, spare parts and consumables along with servicing of loan EMIs. NBFCs over banksNBFCs are an integral and a significant segment of Indian financial system. NBFCs play a complementary role in the financial inclusion agenda and bring the much needed diversity to the financial sector.Devendra Kumar Vyas, CEO, Srei Equipment Finance Ltd explains why NBFCs are beneficial over traditional banks. “AFCs have a better reach, and are therefore placed better to serve retail contractors and hirers. Due to their simplified procedures, flexibility and timeliness in meeting the credits needs and low cost operations, the AFCs get an edge in providing finance, particularly to small and medium enterprises.”He also believes that AFCs are far ahead than banks and have the ability to provide specialized solutions rather than just being customers’ financier. “NBFCs have formed deep relationships with its customers, which would be difficult for other institutions to replicate,” adds Vyas.A ferocious supporter of NBFCs Vyas is confident that the regardless of the financial and market condition, NBFCs will still be the preferred choice. To support his views, Vyas adds, “NBFCs, over the years have developed the necessary tools to reach out to the customers, educate them about different funding options and provide holistic financing solutions.” It is believed that NBFCs understand the equipment markets better and often have tie-ups with the manufacturers, which indirectly benefit the customer.Clarity and transparency are crucialWith the wide choice of financiers in the market today, it becomes difficult when it comes to finding the right equipment finance option. Stating what should be taken into account while choosing, Das says, “The owner should choose a financier from which complete transparency in dealing is expected. While interest rate plays an important role, a financier which services its customer with clarity and transparency is always desirable. It is better for a customer to pay a couple of hundred rupees more than feel cheated or short changed post taking the finance.”Putting Transparency firstDas also shared the offerings of Magma. He says, “At Magma we always put servicing and transparency first over anything else when dealing with our customers. As a result, customers come back to us for repeat financing in spite of a few other financiers offering lower rate of interest.”The company claims to have significantly leveraged technology which allows the company’s field force to issue system generated receipts to the customers on the spot, once the payment is received. “Each Field officer of Magma carries a Tab and a small blue tooth printer. On receipt of payments, the tab generates a receipt and the printer prints it simultaneously on the spot, which could be at customers’ house or the field where the equipment is deployed,” says Das.Being an asset than a financerExplaining what differentiates Srei Equipment Finance from the rest, Vyas says, “It is our ability to provide an integrated ‘asset solution’ instead of being just the financier. We assist our clients across the life-cycle of assets from procurement, deployment, maintenance to final disposal. We have customers across the entire infrastructure horizon i.e. First Time User (FTU), First Time Buyer (FTB), Fleet Owners, SME or small contractors and large construction companies.”Srei Equipment Finance is in the business of equipment financing which includes construction and mining equipment, it infra equipment, healthcare equipment, farm equipment and pre-owned construction equipment. Throwing more light on the offerings of Srei, Vyas adds, “Besides traditional financing, we are also engaged into the business of providing equipment on lease as and when required by the customers. We also provide revolving lines of credit to dealers for procuring equipment inventory in structured arrangements with their original equipment manufacturers.”The company claims that it handholds the customers across the value chain, initiating FTUs and FTBs into becoming entrepreneurs and further nurture them into becoming fleet owners and so on. “Our strong relationships with our customers and understanding of the market, allows us to help our customer network and productively deploy the idle equipment by sub-contracting to a larger customer in times of distress,” explains Vyas. Additionally, the company has a used equipment financing vertical, in case they wish to dispose productive equipment. As far is infrastructure equipment financing is concerned, Srei provides financing solutions for new as well as pre-owned equipment, for a wide range of construction and mining equipment such as earthmoving equipment material handling equipment like crawler cranes, tower cranes, telescopic cranes, road construction equipment, concreting equipment like transit mixers, concrete pumps, placer booms and material processing equipment. “These products are widely used in industries such as road construction, mining, power generation, irrigation, highway development, transportation (ports and railways) and urban infrastructure projects. We also provides financing for a wide range of logistics and warehousing equipment such as reach stacker, forklift, commercial passenger and goods vehicles, across the four sub-segments of the commercial vehicle industry in India including trucks, tippers, and trailers, provided that the end-use of the asset acquired by customers is for an income-generating purpose,” concludes Vyas.ConclusionApart from the above mentioned points, factors like practicality, cost-effectiveness and type and use of equipment and the length of time the equipment is needed are to be considered. In addition, examining the ways in which financing equipment benefits a company’s bottom line and business operations can help provide reasons to finance construction equipment. The measures taken into account after properly judging will prove to be fruitful for the user and in a way for the industry.