What does a bank like to see in a proposal for financing for equipment purchases?

Concerning eligibility criteria, factors include the quality of your business, sales and strategic plans, the proposed productivity increases, projected increase in gross margins and management quality.

From an operations standpoint, demonstrate the benefits for the company, the increase in productivity, cost savings, how the new equipment fits in the production line and what adjustments would be required in the production line.

From a cash flow standpoint, answer these questions:

• Can the company afford the equipment? Are there enough funds in the company to cover the purchase?
• Would it be more beneficial for the company's cash flow to lease the equipment rather than buying it?
• Should the company produce in-house and therefore buy the equipment, or outsource production and save the cost of the equipment, gain the flexibility provided by outsourcing and so on?

Ensure that you have a good debt to equity ratio ((existing debt + new loan)/equity) in the company. Show that you have sufficient funds to repay the existing debt (if any) and the new loan.

For example, a loan of $90,000 would probably be amortized over about five years. In this case, the company would be paying: current portion of new loan = 90,000/5 = 18,000/year (this repayment is constant over the life of the loan). Interest for the first year might be = 90,000 x 8% = $7,200. The interest is intentionally set high at 8% to be conservative. Therefore, the company would need to pay $25,200 during the first year of the new loan (in addition to any existing debt from other financial institutions).