What is Technology Finance?
Is your old computer networking failing and interrupting office productivity? With technology finance, your network upgrade is possible even without touching your working capital.
Most businesses rely on technology to operate on a daily basis. This technology, no matter how proven and reliable, will soon require an update through replacement or addition of new equipment.
For startups and small businesses, however, a technological upgrade may not be that simple. Sometimes, their working capital is not enough to cover the cost of replacing, fixing or buying new equipment. Other times, the cash flow is slow that spending money for the much-needed technology upgrade is risky.
It’s a good thing that businesses can borrow money from lending companies to support technological upgrades.
Technology Finance is a Personal Loan for Technological Upgrades
While a large company can easily apply and get approved for a business loan, small businesses sometimes get denied because of not enough years in the business or making a little annual profit to prove stability. When the latter happens, the alternative is usually to seek personal financing that can be used for any project—be it business-related or not. For specific technological upgrades, the typical choice is technology finance.
Technology finance is a personal loan to replace or purchase new technology equipment as part of a small upgrade or a complete office technology.
This technological equipment can be hardware or software, such as:
- Computers, laptops, tablets, and smartphones
- Servers, Internet connection via DSL or WiFi
- Telecommunication systems and networking equipment like routers and switches
- Printers, fax machines, photocopiers, and scanners
- Alarm and Camera Systems
- Software like Windows, Adobe Creative Suite, Antivirus programs, Email Marketing, Accounting, Customer relationship management; and HR systems for tracking applicants, employees’ attendance, and payroll
- Subscriptions to digital tools, like Salesforce, Hubspot, and Shutterstock
Technology Loan Rates and Terms
The interest rates of technology loan typically range between 6% and 10% for well-qualified borrowers, while rates topping out around 30% are available through some subprime lending programs. Typical equipment loan terms are between two and seven years, with terms of 10 years available for certain equipment.
Before taking out this type of loan, consider if the return of the technology upgrade is worth the financial burden of the loan. While an interest rate of 16% or higher may make it difficult for a struggling small business to repay, it may be very crucial to the operation. This is especially true for small businesses that are heavily dependent on a particular technology, such as printing press, Internet providers and software developers.
The terms of the technology loan usually do not exceed the predicted life of the equipment, which is both beneficial for both the lender and the borrower as the latter wouldn't be making payments on a retired piece of equipment.
How to Apply for a Technology Loan
The application process for technology finance is similar to that of equipment finance. These include:
The requirements can differ from one lender to another and are heavily dependent on the amount of money being borrowed. Generally, the bigger the amount, the more stringent the requirements. For instance, small businesses that need around $5,000 for technological upgrade may be simply required to prove their time in the business (at least six months to one year), profitability (through income tax returns and bank statements that show an annual revenue of at least $25,000), and good business credit standing (around 60 or higher from a scoring range of 0 to 100).
Meanwhile, those that need around $50,000 may be required to have a good credit standing aside from being in operation for at least two years and having an annual profit of around $100,000. In most cases, they are also required to pledge the technological equipment they're purchasing as collateral for the loan.
All businesses must be owned by an Australian citizen or a permanent resident of legal age.
Like other types of loans, the down payment affects the approval and lowers the total cost of the loan. Loan down payments usually range from 5 to 10 percent of the total loan, but if you can provide a higher amount than this, it would lessen your monthly repayments and loan terms.
The agreement involving collateral depends entirely on each lender. Typically, the technological equipment becomes the collateral for the loan, especially if it is of high monetary value. Pledging your equipment as collateral often lowers your interest rate. However, make sure to complete the loan repayments within the agreed period. Otherwise, your equipment will be repossessed by the lender and sold to other businesses to recover the money they've lent you.
Is a Technology Loan Right for Your Business?
A technology loan, like other types of equipment financing, is a great financing option for small business owners due to their low-interest rates and quick disbursal times. However, borrowers should still consider the drawbacks, such as short terms and the potential that you might not meet the financial requirements.
Positive Lending Solutions helps businesses get the right financing for their business through their wide network of lending partners. For inquiries or application, call 1300 722 210 or complete the Loan Pre Approval.