Though there are many SME loans available in the market that can be used for various purposes, a specific loan can be beneficial if you are sure about the purpose of taking the loan. Machinery loans are one such type of loans that can be taken to purchase machinery.
Here is all that you need to know about machinery/equipment loans.
Machinery/equipment loan is a type of business loan that helps business owners to secure the necessary funding to get the machinery/equipment required to streamline their business processes and scale up production. Increased productivity will lead to higher output, in turn, higher sales and revenue.
Many lenders provide machinery/equipment loans at attractive interest rates based on the applicant’s business profile, profitability, and necessity. As per the regulations specified in India, businesses that obtain machinery loans to purchase machinery can enjoy tax benefits.
In this case, the ownership of the machinery you purchase with the loan amount will be held by the lender as long as you repay the loan entirely. No other collaterals are required to get the loan.
The Government of India offers tax benefits for many types of business loans, especially for small businesses. Machinery loan is one such loan that comes with some tax benefits. That is the interest payment you make towards the machinery loan is eligible for a tax deduction. However, the same does not apply to the principal part of the loan. In any case, your total taxable income for the financial year will be reduced and, in turn, the actual tax payable also decreases.
An equipment loan is different from equipment leasing in that the business will own the equipment once the equipment loan is paid off. However, the equipment must be returned once the lease period is over.
The loan amount you can avail depends on many factors, such as the actual cost of the machine, whether new or used equipment, the operational status of the business, and many more. Also, it may vary based on the lender. Therefore, we cannot predict the exact amount you can get in the form of a loan.
Machinery loans are usually unsecured, meaning that you do not have to pledge any assets as collateral. However, the machinery itself will be considered the lender will hold collateral since the ownership of the machinery until you pay off the loan fully.
The possibility of a loan extension may entirely depend on a case-by-case basis. The lender considers the nature of the equipment, its life expectancy, and probably the remaining loan amount before deciding in this regard.