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How Machinery Finance Is Helpful For A Small Business?

By siliconindia   |   Thursday, January 3, 2019
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Machinery finance is useful for a business looking to buy new machinery or equipment or upgrade it to the latest version. Machinery and equipment are very important for a business as they are the base on which a business produces products and services and operates. In this write-up, we shall discuss facts about machinery finance and how it is helpful and beneficial for a small business.

Rahul

Rahul has over 7 years of experience in digital marketing. Prior to joining ZipLoan.in , Rahul worked at Content Mart and was instrumental in ensuring a 110% year on year growth of the business. Before this, he worked at Jabong as a part of the International Business Expansion team which focused on Overseas Markets. In the initial phase of his career, he worked with autoportal where he achieved a 65% traffic scaling. Rahul holds a Bachelors degree in Technology.

What is Machinery Finance?

Machinery finance is availed to finance machinery and equipment. A business often requires to replace, purchase, or upgrade equipment to boost production and operation. Equipment and machinery can be anything - medical machinery, cookware, ovens, linens, and tables and chair, phone systems, copiers, vehicles, furniture, etc. All the equipment and machinery is essential for a business to operate at its maximum efficiency and productivity.

Well, what do you do when your equipment or machinery is broken or too old or outdated to achieve maximum production at the lowest cost possible? You either choose to buy a new one or lease it. Leasing equipment or machinery might sound better since the businessman is not required to pay the entire cost of the machinery in one go. However, it comes with the lease cost. And in the long run, this makes leased machinery expensive compared to buying it.

In these situations, where buying machinery is important for the business but the businessman does not have enough spare cash to buy machinery, machinery finance turns savior. There are many machinery finance companies in India that offer machinery loans to SMEs and MSMEs in India at minimal documentation and basic eligibility. A businessman can look forward to avail a machinery loan from them to upgrade or buy new machinery and equipment.

Documents required for Machinery Finance

The machinery loan documents differ from one loan lender to another. However, there is not much difference between the documents required for a business loan and machinery loan. The following is a generic list of required documents:

  • PAN Card and adhar card to support income and ITR information and identity respectively.
  • Last 12-months (at least) bank statement of the account linked to the business to check the creditworthiness and financial behavior of the business owner.
  • Last 2 year (or 3 years for some lenders) ITR for income-related information.
  • Business premise and residence address proof, such as lease deed, utility bills, etc.

Notably, the required documents depend upon the eligibility criteria for the machinery loan set by the lender. In addition, if a secured machinery loan is availed, the documents of the hypothecated asset is also required. Having said that, if a machinery loan without security is availed, there is no such requirement.

Eligibility Criteria for Machinery Finance

The eligibility criteria set by an equipment finance company in India are:

  • The machinery loan seeker must be between 25-60 years of age.
  • The business vintage (the business must be in operations) for at least 2 years.
  • The ITR filed in the last one year by the business owner must be 2.5 lakhs.
  • The turnover of the small business in the previous year should be 10 lakhs.

As with the documents required, the eligibility criteria for collateral and collateral-free machinery loan is different. In case a machinery loan without security is availed, the house or the business premise must be owned by the businessman. It is worth mentioning if a collateral machinery loan is availed, the sanctioned loan amount by the lender would be less or equivalent to the monetary value of the hypothecated collateral or asset.

How to get Machinery Finance?

Many people find it difficult to avail a business loan and often search online, how to get a business loan. However, with the advent of technology, availing a loan for a business is not that difficult. To avail a machinery loan, the borrower can simply visit the website of the loan lender. If the lender offers their mobile App, the borrower can also download it to apply for a machinery loan. After filling the loan application, the next step is to upload the required documents. If the application is approved, the loan amount will be credited to the borrower’s bank account in a few days.

How a Machinery Loan is Beneficial?

As discussed above, a machinery loan is availed to buy new or upgraded machinery. So, the upgraded machinery can be beneficial for a business in the following ways:

Production

With the upgraded and advanced machinery or equipment at disposal, the borrower has access to the latest technology. And with its help, a small business can enjoy the advantages of higher production of goods and services and that too in lesser time. This will lead to greater sales in the long run.

Product/Service Quality

Availing machinery finance results in having access to improved technology. And with the help of improved technology, enhanced and better quality products and services can be produced. This will help in garnering customers’ trust.

Profits

With higher production of products and services, the cost per unit decreases. This ultimately leads to increased profit.

Turnaround Time

Latest technology leads to greater production. And greater production helps in completing orders before or on time. This results in fast turnaround time and the business would never be in the out-of-stock situation.

Defects

If improved and latest technology and machinery is employed to produce goods and services, the products manufactured are usually defect-free. This helps in building strong goodwill of the business among the customers and in the market. In addition, it also leads to reduced wastage of money on the defected goods.

Setting-up Time

The new machinery or equipment takes lesser time in the set-up as compared to the old machinery. This ensures quicker and faster production and lesser wastage of time.

The Bottom Line

Machinery finance can be used to buy new machinery or equipment or upgrade to the latest version. New and upgraded machinery helps in improved productivity, sales, and increased profits. A machinery loan is offered by many loan lenders in India at minimal documentation and basic eligibility criteria. In addition, it can also be availed online in a hassle-free manner.

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