Be it a new enterprise, one that is in its initial stages, or one that is growing at a steady rate, top-of-the-line machinery and equipment are the keys to consistent productivity and better sales. Not only do they help in reducing the need for manpower but they also help in meeting peak season demand, ensuring greater sales and profits. Machinery/equipment financing is a financial instrument that provides funding to business owners for them to purchase new machinery or upgrade existing machinery. Businesses whose working capital is insufficient for equipment financing can opt for a machinery/equipment loan.
What is a Machinery/Equipment Loan?
A machinery/equipment loan is a type of business loan taken to finance the purchase of new machinery or equipment for a business. It helps business processes and scales up production. Increased productivity will lead to higher output, in turn, higher sales and revenue.
Modern business tools and equipment are a great way to expand your business but finding the right financing for them can be difficult at times. A machinery/equipment loan makes financing easy and removes any roadblocks in achieving business success.
Many lenders provide machinery/equipment loans at attractive interest rates based on the applicant’s business profile, profitability, and necessity. As per the regulations specified in India, businesses that obtain machinery loans to purchase machinery can enjoy tax benefits.
No other collateral is required to get the loan as the ownership of the machinery you purchase with the loan amount will be held by the lender as long as you repay the loan entirely.
Features and Advantages of Machinery/equipment loan
Equipment financing via a machinery loan offers the following advantages –
- Higher Productivity – A machinery loan allows you to upgrade to newer technologies using which you can produce more units in lesser time.
- Better Quality – As you upgrade to newer machinery, you will be able to manufacture products that are high in quality, strengthening the trust of your customers.
- Faster Turnaround Time – With a faster turnaround time, you can meet your production targets and improve your business relations.
- Higher Profits – The increase in productivity will reduce the cost per unit, further enhancing your profits.
What are the benefits of a Machinery/Equipment loan?
Some of the benefits for business owners who are availing of machinery/equipment loan are mentioned below:
- Some types of equipment finance like equipment leasing and sale and leaseback are more tax-efficient than buying outright.
- Machinery/equipment finance in most of its forms gives you predictable payments so you can spread the cost over time. That means easy to budget and manage cash flow is a little bit simpler, and you can focus on running the business.
- If you finance one piece of equipment and your business starts growing, you can get more items quickly without a large outlay. That is the flexibility and scalability offered by this loan
- One of the often-forgotten but important reasons to finance equipment rather than buy it outright is access to other lines of credit. For similar reasons as tax efficiency, equipment finance is usually a predictable monthly expense, which means you can get another type of business finance alongside it.
- Machinery/equipment loans offered by banks and NBFCs are mostly collateral-free or termed as unsecured loans.
- Interest rates offered are competitive and shall depend on the repayment history and creditworthiness of the borrower.
What are the eligibility criteria for a Machinery/Equipment loan?
There are certain eligibility criteria set up by banks, some of the eligibility criteria are as follows:
- The minimum age should be 21 years and the maximum 65 years of age
- The individuals from corporates, partnerships, trust, proprietorship, public firms, private firms, contractors
- The company should be making a profit for the last 3
- Income Tax Return (ITR) statements for the last 2 years
- Your business turnover must show an upward trend
- Your balance sheet must be audited by a registered Chartered Accountant
What are the Documents required for a Machinery/Equipment loan?
The following documents will be needed to submit when applying for an machinery/equipment loan, they are as follows:
- KYC documents
- ID proofs: Aadhar card, PAN card, Passport, Voter’s ID
- Resident address proof
- Business address proof
- Business registration proof:- Partnership deed/ Certified copies of MOA / AOA
- Last 6 months’ bank statement
- Passport size photos of the applicant
- Last two years of income tax returns and audited financials
- Details of suppliers and machinery name
- Business plan/ Project report
- Quotation of machinery to be purchased
What Industries/Sectors use Machinery/Equipment loans?
There’s an almost limitless amount of industries and sectors eligible for equipment finance:
- Bar and pub
- Restaurant and takeaway
- Café, bakery, and coffee shop
- Events and marquee
- Agriculture and farming
- Buses, coaches, cars, vans, trucks, and haulage
- Finance for a garage or mechanic
- Laundry and dry cleaning equipment finance
- Manufacturing and heavy industry
- Office and IT equipment
- Racking warehouse equipment and shelving
- Refrigeration and air conditioning