Businesses are in constant need of various kinds of equipment, whether its machinery, vehicles, or office electronics. More often than not, either the business owner does not have access to this much of liquid funds or they may think it inadvisable to spend a lump sum amount on equipment. It would rather be invested in other more profitable operations. This is where an equipment loan will help the business.
It is a smooth and efficient way to fund various equipment requirements of the company up to 100%. You can borrow how much you need to cover the cost of the equipment, and the equipment itself will serve as collateral against the loan. The interest rates are generally very competitive and will have a set tenure. The term of the loan varies between 12-24 months; the borrower can choose one that suits his pocket.
This is mainly because once the equipment is depreciated, they will not have any collateral against the loan in case repayments go awry. Of course, some businessmen have a great ongoing relationship with the loan agency and an excellent credit score so the lending agency may make exceptions in these cases. Therefore, it is always beneficial to maintain a good credit score and business relations.
When does a Business need to acquire an Equipment Loan?
There are a number of situations that could come up in a business wherein the business owner will decide to secure an equipment loan. It could be that the equipment or machinery required is very expensive or that there are funds. But the business owner is unwilling to spend current capital on the equipment and decides it’s wiser to secure a machinery loan or an equipment loan.
Another reason could be that the equipment used in the business is of a very short life span and needs to be replaced frequently. It’s best to get a loan for such equipment with quick wear and tear. Lastly, if the business is in a very dynamic and fast-moving industry, the equipment will have to be replaced very often as and when there is a new technology that needs to be adopted. In these businesses, too, the entrepreneur generally chooses to get a machinery loan.
Answered: Most Burning Questions About Machinery Loan Without Security
Eligibility for Securing an Equipment Loan
Generally, there are few sectors like the automobile, food processing, printing & packaging, food & beverage, medicine, agriculture, etc. that seek a machinery loan. These industries will be needing equipment like trucks, tractors, manufacturing & factory equipment, large commercial printers, medical equipment like x-ray machines, restaurant equipment like ovens and advanced stoves, etc.
On requesting the loan, financial institutions and loan agencies will have certain guidelines set to confirm that the business is eligible for gaining this type of loan. The company must be in business for two years or more. Income Tax Returns must be available of the past two financial years. Lastly, the age of the business owner cannot be above 65 years or below 21 years. Apart from this, there may be some more eligibility criteria that will defer from lending institution to lending institution depending on the guidelines set internally to ensure smooth and efficient business operations.
What are the documents required while applying for a Machinery Loan?
Once the business clears the eligibility criteria, there are certain documents that need to be submitted, which includes a latest passport-sized photograph, identity proof like voting card, pan card, KYC documents of the company, audited financial statements of the last three years, ITR of the past two-three financial years, and a quotation of the machinery that is to be purchased. These are generic documents that all lending agencies will request. There may be fewer or more documents requested depending on the internal guidelines set by the loaning agencies.
What are the benefits of a Machinery loan?
There are fewer documents involved compared to any other kind of business loan since the machinery or equipment being acquired is collateral. Significantly, not all lenders keep machinery as collateral as they offer unsecured business loans. The monthly installments are easy and not a very heavy financial burden. The ownership of the equipment lies with the business owner completely. Thus, if the machinery in question has a long life span, it will prove to be very beneficial to the company since it will last long after the loan is repaid. The business owner can then use the same machinery as collateral to secure another business loan. There will be depreciation on the equipment since it is a tangible asset. This is also a benefit since the depreciation cost will prove to be tax-efficient.
Key Points to Takeaway
- Machinery loan amounts are usually between 1 lakh and 5 lakhs
- The tenure of the loan can be anywhere between 12 months and 24 months
- Interest rates are very competitive
- High credibility businessmen can enjoy customised programs
- Government benefits are also available to businesses in the SME sector
- Quick disbursement of the loan amount due to advanced technology
The small and medium businesses in India are being boosted by the market as well as the government. In a short span, this sector has become the backbone of the Indian economy and is the reason for over 40% of employment in India in the manufacturing as well as service industries. It has created opportunities for employees and employers. Business owners of small and medium enterprises are privy to many advantages and benefits today.
Government benefits, along with great schemes by lending institutions like banks and loan agencies are promoting more and more individuals to enter this sector as a business owner. Earlier, obtaining a loan for plant & machinery, land, vehicles, and other business equipment was very tedious and thus, did not motivate young minds to start a business. Today, with India being number one globally in the ease of doing business category, many individuals are thinking beyond the 9 to 5 and are entering the world of business.