Running a business comes with its own set of challenges. There might be times when an MSME needs financial aid to either overcome a hurdle or upgrade itself. Regardless of the need, a business loan can help MSMEs get the required financial assistance to grow their business. There are different types of business loans depending on the need, such as working capital loans for managing day-to-day expenses, commercial premises loans to purchase new spaces for expansions, and equipment and machinery loans, to state a few.
What are Machinery Loans?
With technological advancements making modern innovations available, buying cutting-edge tools and equipment has become a key element in maintaining a competitive edge and promoting business growth. Buying new and refurbished machinery also helps small businesses save on repair and maintenance costs while increasing the overall productivity of their manufacturing units. It may also help manage costs, but in the long run, it will need a significant amount of money for repairs. A machinery and equipment loan will prove helpful for those businesses who want to equip themselves. This loan is collateral-free that can be used to purchase new equipment. It is a smart approach for small and medium-sized businesses to fund the purchase of machinery and equipment.
Benefits of Machinery and Equipment Loans
Equipments have a cost that can be too expensive for small and medium enterprises. Obtaining a loan for SMEs and MSMEs is an excellent approach to expanding a small business while providing particular benefits to the borrower. Purchasing high-tech gear and equipment can be costly. The availability of equipment loans from various banks and NBFCs has made it simple to acquire equipment that might provide a competitive advantage. Let’s take a look at some of the benefits of a machinery and equipment loan.
1. Avail funds, instantly
One of the reasons for applying for an equipment loan is that they are simple and quick to obtain, resulting in instant money in your account. A delay in getting the loan amount might affect your business. If your loan application is granted, you may expect the funds to be transferred immediately to your bank account within 24 hours.
2. Collateral-free loan
You are not required to arrange for a guarantor or pledge any of your personal assets as security when applying for a machinery loan. Moreover, the loan policies are straightforward, with no hidden fees, so you can be confident that there will be no hidden terms. You can complete it by meeting the MSME business loan eligibility criteria and submitting the necessary papers.
Apply for Machinery Loan
3. Benefit from pre-approved offers
Availing a loan is the best way to pay your business's equipment needs, whether they are minor repairs or the purchase of new machines. If you apply for a loan from a lender with whom you have previously done business, you will obtain the loan on a pre-approved basis. Being a current customer simplifies the procedure because the lender already has all of your personal information. You only need to give any additional information to receive a machinery loan. This results in faster loan approval and disbursement.
Eligibility criteria for Machinery and equipment loan
• Applicant's age must be within 21- 65 years in order to be eligible for
applying for a loan for machinery
• A business should be at least two years old
• Income Tax Return documents for the last two years
• Bank statements of the last twelve months
• Applicants cannot afford to be a defaulter on any previous loan
Machinery Loan Interest Rate:
The machinery loan interest rates are determined by their cost of capital and banks, PSUs, and non-banking financial companies offer MSMES these machinery loans. Banks typically offer lending costs per ROI ranging from 9.5 per cent, which is backed by additional security as collateral as well as hypothecation of your machinery. Normally, the rate of interest provided by NBFCs is determined by CIBIL, credit rating, and equipment type. The normal NBFC ROI ranges from 12.75 per cent to 15 per cent and is provided without security or collateral. Most banks require applicants to produce collateral or security in order to reduce their risk if the borrower defaults or declares bankruptcy. However, there are a few NBFCs, Small Finance Banks (SFBs), and Micro Finance Institutions (MFIs) around the country that offer collateral-free machinery loans to their customers. They extensively analyse the applicant's CIBIL score, creditworthiness, payback potential, and financial stability before issuing permission on machinery loan applications. The machinery loan interest rates are also competitive, which means the rate of interest for loans will not be that different from the other lenders in the market. Before issuing an approval, the lender examines and verifies the submitted documents for legitimacy. If the lender is pleased with the supplied paperwork, it will grant loan approval for disbursement, making this an effective mode of finance to purchase equipment for your small business.