One of the methods to develop and enhance efficiency is through upgrading with advanced machines. However, the cost may be too high, especially when one is dealing with SMEs. The machinery loans provide a channel to acquire the needed equipment while minimizing the load on the firms’ finances. Businesses can now have better deals and interest and terms of payback with the secured machinery loan.
This article will discuss the features, benefits, eligibility criteria, and documents required to get a machinery loan for MSME with security at the best rates.
Features and Benefits of Machinery Loan
Here are the key features along with the benefits:
1. Competitive Interest Rates
The interest rate of secured machinery loans is less than that of unsecured loans. This is because the risk is small due to the reliance of the lender on machinery or other forms of collateral.
2. Repayment Terms
Flexible repayment periods can be 1 to 7 years or more, depending upon the SME loan amount and the lender’s assessment of the borrower’s financial capacity. Such flexible repayment periods provide scope for flexible planning of funds for the business.
3. High Loan Amounts
Secured machinery loans allow businesses to borrow higher amounts sometimes up to 70%-90% of machinery value. Expensive, advanced equipment can easily be purchased, which otherwise are out of affordable range.
4. Quick Processing
Lenders understand the importance of timely funding for businesses. Many banks and financial institutions process machinery loans quickly, ensuring businesses get their equipment without delays.
5. Improved Productivity
This means investing in new machinery can increase efficiency, reduce costs, and boost production capacity. This enables businesses to grow and compete effectively in the market.
6. Tax Benefits
Interest paid on machinery loans is often tax-deductible, thus reducing the total cost of the loan. Businesses should consult with a financial expert to understand applicable tax benefits and any other added benefits.
7. Collateral Options
The purchased machinery acts as a security to the loan. However, there are lenders that accept other security forms such as property or land, house documents, etc.
Machinery Loan Eligibility and Documents
The process of getting a machinery loan starts with eligibility and documents. Being aware of what is required and what can make the application process for the loan more hassle-free.
Eligibility Criteria
● Business Type: Most of the lenders provide machinery loans to SMEs, manufacturers, traders, and service providers.
● Business Tenure: The business should be in operation for at least 1-2 years as per the lender’s policy.
● Turnover and Profitability: Good turnover with resultant consistent profitability can enhance the possibilities of loan approval better and faster.
● Good credit: Credit score-anything in the range of 700 would help in getting a better deal and lower interest rates.
● Age of applicant: The age of the applicant must be more than 21 and less than 65 if it is a case of businesspersons.
● Value of collateral: The amount must meet the lender’s criteria-Value of machine, etc.
Required Documents: For a machine loan application most required documents consist of the following;
● Identity Evidence- Aadhaar Card /PAN CARD /Passport/ Voter’s ID/License.
● Evidential Documents of the Residence – utility Bills/ Rental agreement/ and Property papers.
● Business Proof: A Registration certificate for a business. Or GST, partnership deed, etc.
● Financial Documents:
– Bank statements for the last 6-12 months.
– Income Tax Returns (ITR) for the last 2-3 years.
– Profit and Loss (P&L) statements and balance sheets.
● Quotation or Invoice: The quotation or invoice from the machinery supplier is required to justify the loan amount.
● Collateral Documents: If other assets are being used as collateral, their ownership and valuation documents are required.
● Photographs: Passport-size photographs of the applicant.
Conclusion
Machinery loans with security provide businesses with an affordable means of investing in equipment. Such loans are highly attractive due to low interest rates, flexible repayment terms, and high loan amounts, making them a smart choice for businesses looking to expand. To get the best rates, ensure that your financial records are in order, meet the eligibility criteria, and provide the required documents as discussed above.
NBFCs are the prime source of machinery finance for all small and medium enterprises. Such institutions offer more liberal terms and speedier processing as compared to regular banks, hence a perfect place for SMEs. NBFCs understand that the needs of small businesses differ and provide customized solutions for them. Association with an NBFC gets you the funds to acquire the required machinery and propels your business further.
