June 15, 2019
What are the types of loans in engineering in general? Medium and long term loans
What are the funding requirements for companies in the technical field in general?
Businesses in the technical field cover various sizes and fields; from independent consultants to companies offering technical services, along with construction, work and maintenance of facilities. Its main fields include civil, electrical and mechanical engineering, while rapid technological developments have led to expansion of advanced technology fields such as drone engineering, digital engineering and nuclear engineering.
Loans in engineering can cover various costs associated with running your business. including:
Investment in technology
In a rapidly developing landscape, companies in the engineering field need to use technology to stay ahead of the curve. With third party financing, adopting high-cost technology — such as robot automation, drones for project monitoring, wearable GPS devices and predictive analysis systems — can be made more accessible to small and medium enterprises.
Covering labor costs
Apart from covering payroll costs, third party financing can help certain businesses cover costs in employee initiative training — a benchmark needed to overcome widening talent gaps in the engineering sector.
Buying technical equipment is costly for companies in this field — especially when it requires specially designed machines and equipment. Third-party financing options can help cover upfront payments if a company does not have sufficient funds, or is used as capital that can be invested in other business needs — such as hiring people or funding activities for the growth of the company.
Transition towards environmentally friendly practices
There is no denying the increasing importance of sustainability; along with strict climate change agreements, increasing demands for environmentally friendly practices and a greater focus placed on corporate sustainability performance, it is important for companies in the engineering field to take steps towards implementing environmentally friendly initiatives. Some examples of these initiatives include energy saving systems, LEED certification, carbon reduction solutions and waste reduction programs.
Fund growth and expansion activities
The lack of working capital to fund large scale projects is a common problem faced by small companies in the technical field. Because it has become a habit on a project, companies often need a lot of cash flow to cover project costs and payroll costs before payment is received.
WRP Engineering is an example; the founder Lim Borgu once told me that his company had been awarded a seven-digit contract, but “did not have the capital to support the initial salary for workers and equipment costs” caused by smaller profits and previously collected projects. In such situations, traditional lenders sometimes think your business is too new to be given a loan — as in Moore’s case — so you might have to look for financing options from alternative lenders.
What are the types of loans in engineering in general?
Medium and long term loans
The definition may vary, but in general, a medium-term loan is a financing option that is set to be repaid within one year, while the period for repaying a long-term loan is three years. These loans offer fixed interest rates that are lower than other types of financing options, as well as smaller monthly payments.
This type of loan is generally used for long-term investments in tangible property (in other words referred to as PP & E-Property, Plant and Equipment), also to cover costs in hiring new employees or financing expansion projects.
Asset Rental and Buy and Sell Agreements
A lease refers to the arrangement between the lessor (owner) and the lessee (user of the asset), in which the lessor buys an asset for the use of the lessee, in return for lease payments. In a lease purchase agreement, the tenant (asset user) pays to the vendor for the use of the asset. Payments and interest rates are set during the lease period, and equipment is returned to the lessor at the end of the lease period.
In a lease purchase agreement, the employer (the user of the asset) makes a payment to the vendor for the use of the asset. The tenant is required to pay the initial installment, and the remainder (together with interest) is paid during the duration of the agreement. At the end of the agreement, the employer has the option to obtain ownership of the asset.
Unsecured loans and collateral loans
With collateral loans, borrowers are required to place assets as collateral. If the borrower is negligent in paying the loan, the lender can sell the assets to pay off the amount of debt he has. Guaranteed loans that are usually obtained by businesses in the engineering sector include equipment financing and term loans.
Conversely, to get a loan without collateral, the borrower does not have to put assets. Instead, the loan is approved based on factors such as the credit score of the business owned by the borrower and the strength of the cash flow. Credit lines are examples of unsecured loans used by companies in the technical field.
Credit lines, also known as revolving loans that give borrowers access to loans whose amounts have been previously agreed. Think of it as a credit card, where you can use it when and when you need it, and interest is only charged to the amount used. Flexible and versatile, these are financing options that can cover a variety of short-term business needs, including cash flow vacancies due to business seasonality, unexpected repair costs or payroll costs.
Tips to help you prepare for loan applications in engineering
Be prepared to present your business non-technically
It’s likely that your potential lender won’t have an in-depth understanding of the characteristics of your business or the types of services you offer, so it’s best to avoid using technical terms or getting too far into the details of your project.
Staying simple is the key; use the term layman if possible, and include simple drawings or graphics if you need to elaborate on complex concepts.
Manage your reputation in the online world
The existence of your world in the online world is a way to show potential lenders that your business is a reliable and trusted authority — and managing it effectively can give you support in your loan application. Here are some steps you can apply:
Being responsive: Responsive on social media, and responding to reviews in online media — especially negative ones — shows that you are committed to building positive relationships with your customers, and will quickly take steps to improve the situation to improve the situation.
Becoming a leader full of ideas: Removing opinions, good writings, networking with influencers in your industry and participating in community events are strategies that can help make you an expert in your field — and will be able to convey to potential lenders that your company has a business reputation whose business is able to make payments on time and consistently.
Where can I get a loan for my engineering company?
Rigorous loan requirements, such as having a three-year operational history, along with an annual income of at least IDR 2,000,000,000, are usually the conditions required by traditional lenders. For example, having a minimal trading history can result in your loan application being rejected — even if you have shown a healthy profit and have a good business plan and payment strategy to support your application.
With the many benefits offered to them, small business people are increasingly turning to online lenders for third party financing. With Astro, the loan application process is easy, efficient and fast — submitting a request only takes a few minutes, and you will be sent a notification about the status of your loan agreement in just 24 hours.