Everything You Need to Know about Equipment Loan/Machinery Loan

Today in the world of fierce competition and ever-changing client’s product requirement, it is necessary to automate, upgrade & improve the efficiency of shop floor with various new types of machinery and equipments.   But what’s more imperative is to look into financial viability and various equipment financing options available for equipment loan to upgrade your machines. Obviously, there are various questions which trigger your mind: Are there any Leasing options available?  What are the criteria for Banks/NBFC’s to fund equipment loan? How many days would it take to avail machinery loan? What are the benefits of taking loan from Banks v/s NBFC?  What are the cheaper financing options available under Suppliers credit? Are there any financing options for Startups? Why Equipment Loan: - Equipment Loan/Machine loans are availed by any business to improve the productivity & the efficiency of your business.  Most common types of equipment loans are availed to by Earth Moving equipments, CNC machines, Industrial equipments, Medical Machines, Dental equipments, Cranes, Precision tool cutting equipments etc.    These machines can either be purchased or can be leased. Which again paves the way to a question Loans v/s Leases, which one is better. Terms and Conditions for Equipment Loan: At least 20% of the money to be infused by the company to buy the equipment. Minimum 2 years of ITR filed and profitability to be shown in the Balance Sheet. No bad remarks on company or promoter, Court cases, Legal hearing etc. Basic CIBIL criteria to be met Machine purchased to be hypothecated to lender till the repayment of the loan is done. Standard M/c’s are funded by any lender since customized machines won't fetch any buyers in secondary markets in event of default. Usually, amount lent is inclusive of 80% of the total Invoice value which is inclusive of GST. Flexible payment options are available with lenders, with moratorium, without the moratorium etc. Benefits of Equipment Loans: Quickest Loan Sanction: - TAT for all equipment loans is shortest. Usually, if all the desired documents are submitted by client, it doesn’t take more than a week’s time to receive the sanction letter. Depreciation/Tax Benefits: -  Biggest advantage of Equipment Loan is calming the depreciation in Balance Sheet. Funding up to 80% of Invoice Value: - Another advantage is you can procure up-to 80% of invoice value (Inclusive of GST) which gives you the flexibility to use more money for the business. Flexible Re-Payment Option: - Many flexible repayment options are available today with the various lenders which gives you the flexibility to choose from deferred payment options, various structured solution to bring down the cost of the project etc. Pre-Requisite for Equipment Loan: Three Years of Business Existence: - To ascertain the business continuity and the performance of the business, Banks/NBFCs usually don’t fund greenfield project unless backed by renowned investors. Good CIBIL Rating: -  Credit Information Bureau India Limited in a rating agency which, maintains and rate your credit risk, which lenders use to assess your credit history and determine your eligibility basis your current exposure and track record of the past repayments on loan. Excellent credit history is the prerequisite to determine your loan eligibility. Excellent Business Plan: -  End use of funds will be sought for and so will be the projected business from the funded amount, most of the times the money is funded directly to the seller than into company account, unless it’s a reimbursement of equipment already purchased. For all the above terms to be met, we need to have an excellent business plan. Your entire business plan should be finalized in a few paragraphs, giving the crux of the business.  Directors Profile/ Company Profile: -  All lenders seek company’s profile to have insight about the company’s vision, products line and major clientele’s. Educational background and experience of promoters are sought to make sure about the person behind the business. Cash Flows: - Financial records confirming the money coming in and money spent is asked, before equipment loan is sanctioned. This is predominantly done to check if the money is invested in business and there is no diversion of funds. Ethical financial reporting is what lenders consider while funding small business loan requirement. Equipment Loan Interest rates:-  Loans offered by various lending institution depends on their cost of funds , hence loans offered by Pvt Banks, Psu Banks would be cheaper than loans offered by NBFCs.  Typical lending cost/ROI offered by Banks would vary between 9.5%-12.5% , which is usually backed by additional security as collateral along with hypothecation of your machinery. ROI offered by NBFCs depends on CIBIL, Credit Rating, Equipment Type. Usual ROI for NBFC starts from 12.75% -15% & is offered without security or collateral free . Machine imported/bought is used as collateral & is hypothecated to lending institution till the time of complete repayment.  What is Equipment Leasing: - Finance Lease options allow you to lease (rent) the equipment you wish. Technically, in such arrangement, Lessee pays to the lessor for use of an asset which is owned by the lessor.  Basically, borrower or lessee pay the cost of the equipment, interest and charges during the term of the agreement, via regular payments scheduled/EMI’s. Upon the end of EMI’s or Loan tenure, equipment can be either purchased at minimal pricing or returned back to the lessor. Leasing is the best option available as this gives you the flexibility to return the equipment post end of the term also, comes at reduced ROI than Machinery Loan. Other Credit underwriting terms & conditions would remain the same as per equipment loan. Processing Fees for Machinery Loan/Leasing :- Processing Fees for all equipment loans /Leasing typically ranges between 0.5% -1.5% . This is taken post acceptance of sanction letter by borrower. SaveDesk provides access to multiple lenders and bring insight to best interest rates, products offered and structures best suited for your business requirement. Want to know more about Equipment loans Call us on +91-9986641076, or write on advisor@ savedesk.co
Saurabh Jain
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Everything You Need to Know about Equipment Loan/Machinery Loan

Saurabh Jain
Blog
30th Jan, 2019
Everything You Need to Know about Equipment Loan/Machinery Loan

Today in the world of fierce competition and ever-changing client’s product requirement, it is necessary to automate, upgrade & improve the efficiency of shop floor with various new types of machinery and equipments.  

But what’s more imperative is to look into financial viability and various equipment financing options available for equipment loan to upgrade your machines.

Obviously, there are various questions which trigger your mind:

  1. Are there any Leasing options available? 
  2. What are the criteria for Banks/NBFC’s to fund equipment loan?
  3. How many days would it take to avail machinery loan?
  4. What are the benefits of taking loan from Banks v/s NBFC? 
  5. What are the cheaper financing options available under Suppliers credit?
  6. Are there any financing options for Startups?

Why Equipment Loan: -

Equipment Loan/Machine loans are availed by any business to improve the productivity & the efficiency of your business. 
Most common types of equipment loans are availed to by Earth Moving equipments, CNC machines, Industrial equipments, Medical Machines, Dental equipments, Cranes, Precision tool cutting equipments etc. 
 
These machines can either be purchased or can be leased. Which again paves the way to a question Loans v/s Leases, which one is better.

Terms and Conditions for Equipment Loan:

  1. At least 20% of the money to be infused by the company to buy the equipment.
  2. Minimum 2 years of ITR filed and profitability to be shown in the Balance Sheet.
  3. No bad remarks on company or promoter, Court cases, Legal hearing etc.
  4. Basic CIBIL criteria to be met
  5. Machine purchased to be hypothecated to lender till the repayment of the loan is done.
  6. Standard M/c’s are funded by any lender since customized machines won't fetch any buyers in secondary markets in event of default.
  7. Usually, amount lent is inclusive of 80% of the total Invoice value which is inclusive of GST.
  8. Flexible payment options are available with lenders, with moratorium, without the moratorium etc.

Benefits of Equipment Loans:

Quickest Loan Sanction: - TAT for all equipment loans is shortest. Usually, if all the desired documents are submitted by client, it doesn’t take more than a week’s time to receive the sanction letter.
Depreciation/Tax Benefits: -  Biggest advantage of Equipment Loan is calming the depreciation in Balance Sheet.
Funding up to 80% of Invoice Value: - Another advantage is you can procure up-to 80% of invoice value (Inclusive of GST) which gives you the flexibility to use more money for the business.
Flexible Re-Payment Option: - Many flexible repayment options are available today with the various lenders which gives you the flexibility to choose from deferred payment options, various structured solution to bring down the cost of the project etc.

Pre-Requisite for Equipment Loan:

Three Years of Business Existence: - To ascertain the business continuity and the performance of the business, Banks/NBFCs usually don’t fund greenfield project unless backed by renowned investors.

Good CIBIL Rating: -  Credit Information Bureau India Limited in a rating agency which, maintains and rate your credit risk, which lenders use to assess your credit history and determine your eligibility basis your current exposure and track record of the past repayments on loan. Excellent credit history is the prerequisite to determine your loan eligibility.

Excellent Business Plan: -  End use of funds will be sought for and so will be the projected business from the funded amount, most of the times the money is funded directly to the seller than into company account, unless it’s a reimbursement of equipment already purchased. For all the above terms to be met, we need to have an excellent business plan. Your entire business plan should be finalized in a few paragraphs, giving the crux of the business. 

Directors Profile/ Company Profile: -  All lenders seek company’s profile to have insight about the company’s vision, products line and major clientele’s. Educational background and experience of promoters are sought to make sure about the person behind the business.

Cash Flows: - Financial records confirming the money coming in and money spent is asked, before equipment loan is sanctioned. This is predominantly done to check if the money is invested in business and there is no diversion of funds. Ethical financial reporting is what lenders consider while funding small business loan requirement.

Equipment Loan Interest rates:- 

Loans offered by various lending institution depends on their cost of funds , hence loans offered by Pvt Banks, Psu Banks would be cheaper than loans offered by NBFCs. 

Typical lending cost/ROI offered by Banks would vary between 9.5%-12.5% , which is usually backed by additional security as collateral along with hypothecation of your machinery.

ROI offered by NBFCs depends on CIBIL, Credit Rating, Equipment Type. Usual ROI for NBFC starts from 12.75% -15% & is offered without security or collateral free . Machine imported/bought is used as collateral & is hypothecated to lending institution till the time of complete repayment. 

What is Equipment Leasing: -

Finance Lease options allow you to lease (rent) the equipment you wish. Technically, in such arrangement, Lessee pays to the lessor for use of an asset which is owned by the lessor. 

Basically, borrower or lessee pay the cost of the equipment, interest and charges during the term of the agreement, via regular payments scheduled/EMI’s. Upon the end of EMI’s or Loan tenure, equipment can be either purchased at minimal pricing or returned back to the lessor. Leasing is the best option available as this gives you the flexibility to return the equipment post end of the term also, comes at reduced ROI than Machinery Loan.

Other Credit underwriting terms & conditions would remain the same as per equipment loan.

Processing Fees for Machinery Loan/Leasing :-

Processing Fees for all equipment loans /Leasing typically ranges between 0.5% -1.5% . This is taken post acceptance of sanction letter by borrower.

SaveDesk provides access to multiple lenders and bring insight to best interest rates, products offered and structures best suited for your business requirement.

Want to know more about Equipment loans
Call us on +91-9986641076, or write on advisor@ savedesk.co

Saurabh
Blog Author

 

One of the Co-founders, Saurabh serves as an active advisor to several SaveDesk’s portfolio companies and also works closely with them to improve business performance, select key management personnel, ensuring statutory and financial oversight and compliance supported by various agreements.Prior to SaveDesk, Saurabh spent seven years with Standard Chartered Bank commercial banking team as an associate director, where he was responsible for client management,financial analysis, portfolio management and large ticket deal’s execution in South India. Saurabh holds an MBA in Marketing from the Institute of Technology Management, and graduated with Honors degree in Electrical and Electronics Engineering from RGPV, Madhya Pradesh

 

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