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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
Everything You Need to Know about Equipment Loan/Machinery Loan
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Everything You Need to Know about Equipment Loan/Machinery Loan 7088 Everything You Need to Know about Equipment Loan/Machinery Loan Blog
Saurabh Jain Jan 30, 2019
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&rsqu...
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What are the current problems being faced by organizations in raising capital?

Raising capital refers to establishing capital from investors or venture capital sources by any firm. When any company wants to be more extensive, it can raise additional capital. Usually, extremely small or small company capitals come from three sources- friends and family, Business Angels and venture capitalists. Medium enterprises most of the times go with debt financing, equity financing and sometimes from the government too. There are many schemes provided by the government for such enterprises which lead to improvising in the economy of India. The methods and processes involved in raising capital for long term and medium term are listed below-       A. Issue of shares Equity shares Preference shares     B. Issues of debentures     C. Loan from Financial Institutions     D. Loans from commercial banks     E. Public deposits     F. Reinvestment of profits The methods and processes involved in raising capital for short term are as follows- Trade credit Factoring Discounting bills of exchange Bank overdraft and cash Above are the most common sources of startup capital for businesses. Every entrepreneur should know the game before being willing to invest their own money and proceed towards implementing business plan. “It’s often said, raising money is not actually a success, it’s not actually a milestone for a company and I think that’s true” - Marc Andreessen We shall now proceed to the discussion of some of the major concerns faced by organizations in raising capital- The current problems being faced by organizations in raising capital   One of the biggest challenges of funding is accepting rejection. Usually, the startup entrepreneurs do not end up with a good response. Investors are really not interested in startup or small-scale industries as they see very less potential. The main trouble that small businesses face while approaching for funds is the problem of uncertainty. Usually, small businesses do not have any past record that investors or lenders can analyse to decide whether or not to provide the small business with the required fund needed for expansion. Usually, small and medium firms have to pay a higher rate of interest in banks as compared to big and established firms. Banks and financial institutions ask for personal guarantees also. The stock marketers tend to lay or attach little value to it because they may not have confidence in small business offers. This will make the firm to issue more number of shares which dilute the firm’s earning. It becomes difficult for small businesses to find investors who are willing to invest. Investors are more likely to invest in bigger and more attractive firms. Strategies to resolve the current issues Grants by the government should be given to individuals for a specific project or purpose. There are some conditions which are to be followed for grants to be obtained. Funds from informal network of friends and family members is often ignored as a source of fund for small and medium-sized companies if well harnessed . Venture capitalists provide money to start-ups in the expectation of abnormally high return.
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What are the current problems being faced by organizations in raising capital?

What are the current problems being faced by organizations in raising capital?

Kranthi Tilak Reddy
Raising capital refers to establishing capital from investors or venture capital sources by any firm. When any company wants to be more extensive, it can raise additional capital. Usually, extremely s...
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Everything you need to know about Business Loan

Loans imparted to meet Short Term working capital gap arrangement are referred to as Business Loans or Business Installment Loans. Such loans can be availed by business houses from multiple loan providers such as Banks, NBFC, P2P lenders etc.While there are myriad options available in the market, businesses should be cautious to resort to such loans arrangements as they are the most expensive forms of financing available in market.Typical Business Loan cost includes the following- Loan Interest is charged between 16-18% Processing Fees can be charged upto 2% Preclosure Charges – Can run up to 4%.Before availing such loans from Financial Institutes, businesses should keep following 4 importants points- 1. Cost of Loan :- The first and foremost thing a business owner should be asking himself is - “Is this the right kind of product at right cost?” Since its non-collateralised product is available in the market, rate of interest is high as mentioned before and tends to eat away bottomline nos.2. No of Loans :- While applying for loans, businesses tend to resort to easiest and quickest ways of applying  loans with multiple lenders, which tends to affect credit score of the company. Bankers relate these Cibil checks with credit worthiness of company. More no. of Cibil checks performed generally indicates that customer loan has been turned down by those many no of Banks/NBFC  & attract hawkish eye from current lender’s credit team.Best approach is to take in principle letter from bankers/NBFC to confirm their intent on funding & apply strategically among shortlisted 2-3 lenders, as per ROI, Preclosure charges , Processing fees etc.3. Prepayment  Penalties:- During the testing times of businesses, many business tend to succumb, to accept all the terms & condition mentioned in the sanction letter.Prepayment penalty is a fee that lender charges if you settle your loan before the loan tenure/predefined tenure. Basically this penalty is imposed to discourage lender from early closure of loans, as it lead to loss of interest earning opportunity for lenders .The point here is that difficult times may last only for a few quarters, but your loan is going to stay with you for good 3-5 years of time. Always ensure that Prepayment penalty clause is discussed and negotiated before acceptance of offer letter.4. Alternate options of Funding:-There are various alternative loan options available in market which are economical and better options than conventional business loans.You should always ask your lender for various alternatives available for your current business needs. Few such alternate options can be- Equipment Finance Loan - In this type of funding, equipment/Machinery of company gets hypothecated to lender.CGTMSE - Government of India has come up with a credit guarantee fund scheme(CGTMSE) for micro and small enterprises in manufacturing sector, which extends up to 2 cr of loan by lending institutions against guarantee. This facility is available at cheapest cost of funds linked to base rate of lending institution.Line of credit Facility - Few banks/NBFC’s come up with tailored solutions to meet your short-term working capital requirement in the form of Credit facility. This facility gives you the flexibility to use funds as per your banking needs and you will be charged only on borrowing .With plethora of lenders available in the market, identifying a right lender, with right product mix at cheapest cost becomes of utmost importance for businesses. Any borrower should evaluate the above points before getting into any lending commitments.
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Everything you need to know about Business Loan

Everything you need to know about Business Loan

Saurabh Jain
Loans imparted to meet Short Term working capital gap arrangement are referred to as Business Loans or Business Installment Loans. Such loans can be availed by business houses from multiple loan provi...
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RBI’s policy on ECB’s ( External commercial borrowings) for startups

AD Category-1 banks can allow Startups raise ECB under the automatic route as per the below guidelines:Eligibility:  If the Central Government of India, recognizes an entity as a Startup, as on the date of raising ECB would be eligible to avail this facility.Maturity: Minimum average maturity period is 3 years.Recognized Lender: Lender should be resident of a country that is a member of FATF or regional bodies associated with FATF (Financial Action Task Force)Overseas branches of Indian banks and overseas wholly owned subsidiary/ joint venture of an Indian entity can not be a lender as per this policy. ECB can be raised by Startups as below:LoansPreference shares (non-convertible, optionally convertible and partially convertible preference shares)Cap on Amount:Startups can only borrow maximum of USD 3 million or equivalent per FY in INR or any convertible currency or combination of both.The lender and the borrower can mutually agree on costs associated with the deal.End use of ECB proceeds:Funds raised through ECB can be only used for anything associated with the borrower’s business.ECB can be converted into equity as long as it’s in line with the regulations associated with foreign investments in startups.Collateral: Lender and borrower can agree upon the collateral/security and it can be movable, immovable assets, patents, IP rights or financial securities.Guarantees: Corporate or personal guarantees can be issued. However, in case of a non-resident they need to qualify as lender to issue the same.Indian banks, Indian FI’s and NBFC’s (Non Banking Financial Company) aren’t permitted to issue a guarantee either in the form of LC, LOU or LOC.Currency Hedging: If the ECB is raised in INR, overseas lender is permitted to hedge the exposure through various derivative products available with AD category -1 banks in India. It is imperative startups availing ECB have the appropriate Forex Risk Management Policy to obviate any risks associated with the currency movement.Retention or investment of ECB proceeds:ECB proceeds can be retained abroad only for expenses in foreign currency, until utilization funds can be invested in the below mentioned liquid assets.Deposits or products offered by banks rated not less than AA (-) by Standard & Poor/ Fitch IBCA or Aa3 by Moody’s.Treasury bills or other instruments of one-year maturity with similar rating mentioned above.Deposits with overseas branches or subsidiaries of Indian banks abroad.Proceeds meant for INR expenditure should be transferred immediately to the borrower’s INR account. Borrowers are allowed to deposit the proceeds, pending utilization, in term deposits with AD category-1 banks not exceeding a period of 1 year.Please click here for Capital Raising Services 
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RBI’s policy on ECB’s ( External commercial borrowings) for startups

RBI’s policy on ECB’s ( External commercial borrowings) for startups

Kranthi Tilak Reddy
AD Category-1 banks can allow Startups raise ECB under the automatic route as per the below guidelines:Eligibility:  If the Central Government of India, recognizes an entity as a Startup, as on the d...
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Rajasthan and Uttar Pradesh with Highest Fiscal Deficits

The central bank’s handbook on Indian provinces said, Rajasthan and Uttar pradesh remains the state with highest fiscal deficits last year. This has been prolonged even as their budget estimates target reductions occurred by 36 percent and 22 percent respectively in the fiscal year 2017. The excess of total expenditure over total revenue can be termed as fiscal deficit. Borrowings are not included while calculating the total revenue.As per the data released on Saturday 24th,2017. Rajasthan stands inflated with the highest  gross fiscal deficit this year. In March,2015 it had a record of 19,000 crore which has gone up more than three times at 67,350 crore, in accordance with the revised estimates in the year ended March 2016. Uttar pradesh has been recorded as the highest absolute deficit with RS.32,510 crore in the year ended March 2015, it has not been left far behind with RS.64,320 crore in March 2016.However, both the states have set to focus to take the edge off the fiscal deficits in the fiscal ended March 2017. Rajasthan and Uttar Pradesh  have targeted to restrain their deficits to RS. 43,150 crores and RS.49,960  crores respectively."Initial trends show that states are attempting to lower borrowings, which will bring down their deficit. Even in the current financial year, state borrowing is coming down. It remains to be seen whether it is due to better collection of taxes post-demonetisation. But the recent spate of farm loan waivers could make a big dent in state finances. Not to forget the impact of the Seventh Pay Commission and GST, which could hit state revenue in the short term," a private bank economist said. CM Devendra Fadnavis, proclaimed Rs 34,000 crore loan waiver scheme on Saturday, Maharashtra became the latest state to have officially declared a loan waiver.The programme would permit to write-off debt up to Rs 1.5 lakh per farmer. The former waivers started after UP proclaimed Rs 36,359-crore plan in April.States like UP , which are debt-laden, will find it burdensome to find the resources to make up for the waivers. Later, it was followed by similar announcements made by Karnataka and Punjab.Credit by commercial bank have started to slow down from fiscal 2015 as per RBI statistics. Lending from state-owned bank have stood still and bank credit has fallen to 5.1per cent in fiscal year 2017, this has been the slowest in over 60 years. There has been sharp slowdown in the industrial credit, which is already appeared to be sinking.
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Rajasthan and Uttar Pradesh with Highest Fiscal Deficits

Rajasthan and Uttar Pradesh with Highest Fiscal Deficits

Saravana Bhaskar
The central bank’s handbook on Indian provinces said, Rajasthan and Uttar pradesh remains the state with highest fiscal deficits last year. This has been prolonged even as their budget estimates tar...
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