Capex Finance: Complete Guide to Capital Expenditure Funding
Specialized funding solutions for business expansion and capital investments
What is Capex Finance?
Capital Expenditure (Capex) Finance refers to specialized funding solutions designed to help businesses acquire, upgrade, or expand physical assets such as property, industrial buildings, equipment, technology infrastructure, or other capital investments that are essential for long-term growth and operational efficiency.
Unlike working capital financing that covers day-to-day operational expenses, capex financing is structured for larger, long-term investments that typically have extended useful lives and generate returns over multiple years. These financing solutions allow businesses to make significant infrastructure investments without depleting cash reserves.
Key Features of Capex Finance
- Long Tenure: Typically ranges from 3-10 years to match the useful life of the acquired assets
- Higher Quantum: Larger funding amounts to support significant investments
- Asset-Backed: Often secured by the assets being financed
- Structured Repayment: Regular EMIs aligned with projected cash flows from the investment
- Customizable Terms: Flexible solutions based on project specifics and business requirements
Capex finance is essential for businesses looking to scale operations, modernize infrastructure, enter new markets, or achieve operational efficiencies through technological upgrades and automation.
Types of Capex Financing Solutions
Term Loans
Traditional long-term loans with fixed or floating interest rates, structured repayment schedules, and secured against business assets or collateral.
Equipment Financing
Asset-specific funding where the equipment itself serves as collateral, often with terms matching the useful life of the equipment.
Project Finance
Structured financing for large capital projects where repayment depends primarily on the project's cash flow rather than the broader financial strength of the sponsor.
Lease Financing
Alternative to outright purchases that allows businesses to use assets without owning them, often with options to purchase at the end of the lease term.
Vendor Financing
Arrangements where equipment suppliers provide or arrange financing terms for purchasers, often with competitive rates to facilitate sales.
Bonds & Debentures
Debt instruments issued by companies to raise capital for major expenditures, typically suitable for larger corporations with strong credit profiles.
Benefits of Capex Finance
Preserve Cash Flow
Maintain liquidity by spreading large capital expenditures over time instead of making lump-sum payments.
Business Growth
Fund expansion projects and market penetration initiatives without depleting working capital reserves.
Operational Efficiency
Invest in modern equipment and technologies that reduce operating costs and improve productivity.
Balance Sheet Management
Optimize capital structure and maintain favorable financial ratios with properly structured financing.
Tax Benefits
Potential tax advantages including depreciation benefits and interest payment deductions.
Competitive Edge
Stay ahead of competitors by investing in the latest technologies and expanding production capabilities.
"The capex financing solution we secured through LoanBazzar enabled us to establish a second manufacturing facility without compromising our operational cash flow. The structured repayment terms aligned perfectly with our projected revenue growth, and the interest rates were competitive. This expansion increased our production capacity by 60% and helped us secure several large contracts we couldn't have fulfilled otherwise."— Manufacturing Company CFO, Mumbai
Eligibility Criteria
Lenders typically evaluate the following factors when assessing capex financing applications:
Business Track Record
Minimum operational history of 2-3 years with demonstrated business stability.
Financial Health
Strong revenue growth, consistent profitability, and healthy financial statements.
Credit Profile
Good credit history with no major defaults or delinquencies.
Debt Service Capacity
Adequate debt service coverage ratio (DSCR), typically above 1.25.
Project Viability
Clear business case showing expected ROI and how the investment will enhance business performance.
Collateral
Ability to provide adequate security, often the asset being financed and potentially additional collateral.
Documentation Requirements
- Business registration certificate
- Partnership deed / Memorandum & Articles of Association
- GST registration certificate
- Business PAN card
- Business license and permits
- Board resolution authorizing the capex financing
- KYC documents of directors/partners/proprietors
- Audited financial statements for last 3 years
- Income tax returns for last 3 years
- Bank statements for last 6-12 months
- Existing loan statements
- Projected financial statements
- Cash flow projections demonstrating repayment capacity
- Detailed project report (DPR)
- Cost estimates and quotations
- Project implementation timeline
- Technical feasibility study
- Purchase orders/invoices for equipment
- Property documents (for real estate investments)
- Regulatory approvals related to the project
- Property ownership documents
- Asset valuation reports
- Equipment specifications and valuation
- Personal guarantee documents
- Insurance policies for assets
- Charge creation documents
Frequently Asked Questions
The typical loan tenure for capex finance ranges from 3 to 10 years, depending on the type of asset being financed and its useful life. Infrastructure projects may qualify for even longer terms up to 15 years. The tenure is generally structured to align with the expected revenue generation timeline from the capital investment. Lenders typically consider the asset's depreciation schedule, industry standards, and your business's repayment capacity when determining appropriate tenure.
Interest rates for capex financing typically range from 9% to 16% per annum, depending on several factors including your business's credit profile, relationship with the lender, industry sector, collateral quality, and overall risk assessment. Rates can be offered as either fixed or floating. Fixed rates provide certainty for budgeting purposes, while floating rates (typically linked to MCLR or external benchmarks) may offer lower initial rates but carry the risk of fluctuation over the loan tenure.
While traditional capex financing typically requires established business history (2-3 years minimum), certain options are available for startups making capital investments. These include equipment leasing, vendor financing arrangements, startup-focused lenders with specialized risk assessment models, and government schemes supporting new enterprises in specific sectors. Startups may need to provide additional security, demonstrate stronger business plans, show proof of market traction, or secure personal guarantees from promoters to compensate for limited operational history.
The key differences between capex finance and working capital finance lie in their purpose, tenure, amount, and structure. Capex finance is designed for long-term capital investments like equipment, property, or infrastructure with longer repayment terms (3-10+ years) and typically higher funding amounts. Working capital finance addresses short-term operational needs such as inventory, payroll, and day-to-day expenses with shorter tenures (generally up to 12 months) and revolving credit structures. The assessment criteria also differ, with capex focusing on project viability and long-term returns while working capital focuses on cash conversion cycles and operational efficiency.
Equipment financing is actually a subset of capex financing, specifically focused on machinery and equipment acquisition. While capex financing covers a broader spectrum including real estate, infrastructure, technology systems, expansions and other long-term investments, equipment financing is limited to tangible machinery and equipment. Equipment financing is typically asset-backed with the equipment itself serving as primary collateral, whereas broader capex financing might require additional security depending on the nature of the investment. Equipment financing also often comes with specific features like equipment-focused lease options and vendor partnerships.