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.
1. What is the machinery/equipment loan?
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.
2. Features of a machinery/equipment loan
- Loan amount: You can get a loan of up to Rs.5 crore to purchase machinery/equipment for your business with a machinery/equipment loan. The loan amount sanctioned may depend on many factors and may vary with lenders.
- Online access: You don’t have to go down to visit the lending institution during these challenging times of COVID-19. You can sit at home or in the workplace and apply for machinery loans online. Many lending institutions have set up their online presence to add ease to the process.
- Unsecured loan: You can get a machinery loan without having to pledge any asset or property as surety for repaying the loan.
3. Benefits of getting a machinery loan
- Timely production: Since you are now equipped with the necessary machinery/equipment, you can rest assured to produce products in a timely fashion with better turnaround time.
- Better productivity: Since the turnaround time to produce products will be reduced, the productivity of your business will increase. That means you can take bigger orders and deliver them in relatively shorter duration as compared to before.
- Higher quality: With access to better equipment, the quality of the products produced gets upgraded and more sophisticated. Quality can be seen as an attracting force for newer and more orders and better trust towards the brand.
- Reduced defects: Since the quality of the products increase, you can expect lesser defective pieces reducing your losses.
- Low expenditure on repairs: Since the machinery will be brand new/good in condition, you don’t have to worry about repairing cost or the idle time of the machines. The loss that follows the idle time is also out of the question.
4. Tax implications on machinery 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.
5. Documents required
- KYC documents
- Passport-size photographs
- Identity proof, such as PAN, Aadhaar, passport, and driver’s license
- Address proof, such as utility bills, Aadhaar, passport, and driver’s license
- Income proof, such as the latest ITR files
- Company account statement for the last 12 months
- Facility sanction letter
- Quotation of machinery to be purchased
6. Frequently asked questions (FAQs)
Q. How is equipment loan different from equipment leasing? A. 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.
Q. Can I get a loan that can cover the entire cost of the machinery? A. 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.
Q. Should I provide any collateral to get a machinery loan? A. 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.
Q. Can I request to extend the loan repayment period if I fail to repay within the specified term? A. 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.