Although many SME loans on the market can be used for various purposes, a specific loan can be advantageous if you are sure about the purpose of taking the loan. For example, one type of loan that can be used to buy machinery is a machinery loan.
What is a machinery loan?
A machinery loan is a type of commercial loan used to acquire new machinery or equipment for a business. Modern business equipment and cutting-edge tools are excellent ways to grow your company, but securing the right financing occasionally takes time and effort. A machinery loan removes barriers to achieving business success and simplifies equipment financing. As output rises due to higher productivity, sales and revenue also rise.
Numerous lenders offer machinery/equipment loans at alluring interest rates following the applicant’s business profile, profitability, and need. In addition, businesses that obtain loans for machinery to buy machinery can benefit from tax advantages, as per the rules laid out in India.
In this situation, as long as the loan is fully repaid, the lender will retain ownership of the machinery you buy with the loan money. For the loan, no additional collateral is needed.
Features of machinery equipment loan
The borrower must be fully aware of the equipment needed for their company and the lender who can offer them the best terms. We’ve listed a few crucial things to remember when applying for an equipment loan.
- Amount of loan – it varies depending on the lender. When determining the loan amount, the lenders consider the equipment’s cost and the borrower’s credit history. Generally, one can receive up to 75% of the cost of purchasing used equipment and up to 90% of the cost of purchasing new equipment. There are offers ranging up to Rs. 25 crores.
- Security/collateral – The purchased equipment has been hypothecated to the lender, so no additional security is needed. However, the lender might require more collateral for larger loans.
- Eligibility – Miners, contractors, partnership firms, corporations, trusts, and societies are all eligible. More than three years of business continuity should be provided by the.
- Repayment – Typical repayment terms range from three to seven years, with a six-month moratorium.
- Interest Rate – The current interest rates for this loan range from 15% to 20%.
Types of machinery equipment loan
- Construction Equipment
- Medical equipment
- Printing equipment
- Plastic and packaging equipment
- Manufacturing equipment
- Aviation industry equipment
Benefits
- Timely production: Because you now have the required tools and machinery, you can be sure that your products will be produced quickly and promptly.
- Better productivity: Since the turnaround time for producing products will be shortened, your company’s productivity will rise. Compared to before, you can now accept larger orders and complete deliveries more quickly.
- Higher calibre: The quality of the products produced improves and becomes more sophisticated with access to better equipment. Quality is an enticing factor for newer, larger orders and greater brand loyalty.
- Reduced defects: You can anticipate fewer defective pieces as product quality improves, lowering your losses.
- Low repair costs: Because the machinery will be brand new or in good condition, you won’t have to worry about the cost of repairs or the downtime of the machines. The loss that results from idle time is also unthinkable.
Tax on the loan
Many business loans are eligible for tax benefits from the Indian government, particularly for small businesses. One such loan with tax advantages is a loan for machinery. In other words, you can deduct the interest you pay on the machinery loan from your taxes. However, the principal portion of the loan is exempt from this rule. In any case, a decrease in your overall taxable income for the fiscal year will decrease the actual tax owed.
How does an equipment loan work?
Banks and equipment financing companies typically offer equipment loans. One can use them to pay for new or used versions of the necessary machinery and equipment. There is no need for additional security or collateral because the purchased equipment serves as collateral. Therefore, spreading out the cost of equipment over several months or years is beneficial.
The borrower may borrow up to 95% of the cost of the equipment. Typically, the repayment period lasts up to 60 months. Additionally, compared to other loans, the processing time is short, and it requires little documentation.
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 and, in turn, higher sales and revenue
Also Read: Business Loan Eligibility
What are the Documents required for a Machinery/Equipment loan?
The following documents will be needed to submit when applying for a machinery/equipment loan, they are as follows:
- KYC documents
- Passport size photographs
- Identity proofs like PAN, Aadhar, passport, and driving license.
- Address proof like utility bills, Aadhar, passport, and driving license.
- Income proof, like the latest ITR Files
- Company account statement for the last 12 months
- Facility sanction letter
- Quotation of machinery to be purchased
- Business plan/ Project report
In the above list, a Business plan also known as a project report is a crucial document when applying for a bank loan. The bank uses this document to analyze the overall feasibility, risks, financial viability, and potential of a project. A well-crafted and convincing project report increases the chances of loan approval. With Finline you can craft a compelling project report in less than 10 minutes. That too in your language. All public and private sector banks working in India accept our reports.
Click to create your project report.