Why Machinery Loan is a Crucial Aspect for any Heavy-Duty Business?

January 13, 2022

The contribution of updated machinery results in consistent productivity of the business ventures with returns in better sales and growth. The machinery and other types of equipment are an essential part of the growth of your business. Production owners or start-ups need to arrange numerous funds to update the old ones with the latest technology machines. Considering that, the financial institutions offer machinery loans for such business purposes. 

Purchasing state-of-art machinery pieces result in top-notch quality goods and more refined production. If the business’s working capital is not enough, opting for machinery finance is probably the best way to buy the latest machines and equipment. The manufacturers and the other business owners can avail the machinery loan to purchase heavy tools for their business ventures. 

What is a Machinery Loan?

A machinery loan is a financial aid to buy, upgrade or repair the heavy tools used for the production. Businesses can increase their productivity and boost their growth by purchasing the latest machinery and equipment. 

Many financial institutions offer a low-interest rate on machinery loans up to ₹ 2 crores. A business venture can avail of a loan depending upon their eligibility, profile, and requirements. A machinery loan can be favourable in several ways for businesses.

Benefits of Machinery Loan

  • It is beneficial to avail large machinery amounts in a single go.
  • This loan does not require any collateral security or guarantor. Hence, a single business entity can provide a machinery loan without protection.
  • Transparent policies by the financial institutions on machinery finance.
  • Quicker disbursement of funds maintains the swift productivity of the business.
  • Flexi loan benefits, i.e., using the loan for machinery purposes per your terms. 
  • Pre-approved loan by submitting missing details through your old lender. 

A machinery loan has proven advantageous in many situations, such as farm equipment financing in the agriculture sector, a machinery loan without security when the borrower wants to opt for a collateral-free loan, bulk purchase of machinery and equipment, etc. At the same time, there are various other situations where the borrower can take advantage of machinery finance and can make the best use of the loan for machinery purchase.

When the business relies heavily on machinery

A machinery loan is proven to be beneficial for industries that heavily rely on machinery. Equipment such as agriculture, construction, metallurgy, manufacturing, and many more come under this category. The business in these industries heavily depends on the latest technology speed of the machines and smooth production process. Spending on these types of machinery can be the key to faster production rate, high volume of sales and overall growth of the business venture. The continuous updating and maintenance of the existing machines are as important as purchasing the latest ones. 

There are different types of machinery in the market that would require a specialist to manage the workforce and use it correctly. Such as a farmer is availing farm equipment loans to buy the latest farming machinery but is unaware of its operational process or the technicality. In this situation, the farmer has already spent on the machinery but has no budget to hire a specialist. His machinery and loan will go into vain if he cannot use them for farming purposes. If the farmer had sketched doubt of the expense before, he would have an outright expense budget. Hence, the business ventures should sketch out the costs wisely and check the requirements on priority. This will clear out any last-minute problem of the machinery and its working. Once the expenses are figured out, the business can outright purchase or go for a lease. 

It is also crucial to opt for a loan that offers flexible repayment tenures and a lease that suits the borrower better. Many financial institutions provide machinery loan amounts up to ₹ 50 lakhs with flexible repayment tenures and EMIs that can save monthly costs for the borrowers.

When you want to fund better business opportunities

The growth chart of a business will never stay on the same level. Sometimes the industry might receive a low-budget order, but sometimes the company might get a random, high-budget order. To fulfil the unplanned orders, the business needs to spend on high-quality and powerful machinery to meet such sudden demands. But in case if the business owners are opting for workforce solutions to such needs, then definitely it will take a lot more time than the required duration to complete the order. Also, it will increase the manufacturing cost for the business. But with fast machinery, the process will be conducted at a much quicker pace than at a lower price. 

To cope with such situations, machinery loans is helpful to provide the back support that the business needs. With machinery finance, the business ventures can get easy and fast access to funds for buying the required updated machinery. 

Adding new assets to the balance sheet of the business venture

When a business venture spends funds on machinery and equipment via the machinery loan, it boosts the balance sheet. It helps in tax exemption under the Income Tax Act through depreciation. Buying machinery and equipment is a tax-exempt asset for a business as they can show them as a part of its functioning. Hence, whether the business balance sheet is being prepared for tax saving reasons or to show it to a potential investor by accumulating funds for the machinery, a machinery loan can do both the job. To buy machinery in instalments, several financial institutions can guide you through the machinery loan at low-interest rates and flexible repayment tenure. 

 Repair or update of the expensive machinery

The intensive wear and tear that these heavy-duty machines go through can damage or cause several flaws. Any machinery and equipment need to go through regular updates and repairs from time to time to work flawlessly. In some business ventures, there might be some machinery that has not been used for a long time, so in this case, these machines also need good repair. The devices require software updates or repairs in various industries because of energy fluctuations or any other cause. Quick and easy machinery finance can cover all these for the business venture. The business should not always depend on the earnings or the savings, which might get exhausted if spent majorly on the machinery. With machinery finance, the business entities can easily cover these unforeseen expenses. This loan is solely related to the machinery and can be used to aid any machinery associated fees. 

FAQs

What do the highest amount of loan one can avail of?

The maximum machinery loan amount that one can get is from ₹ 50,00,000 to ₹ 2 crores. Different financial institutions have set up different maximum loan amounts as per the additional requirements of the business ventures.

Lease or buy which is the best option for your manufacturing business?

If the business venture is short of funds, they can opt for the equipment lease. But if the manufacturing business has enough funds, they should buy the equipment as it is easier, quicker, and cheaper than leasing.

What are the required documents to avail of a machinery loan?

The documents that one needs to avail a machinery loan are address proof, identity proof, passport size photographs, KYC documents, income proof, last one-year bank statement, and existing sanction letter of the facility.

Can we get a loan on machinery?

Yes, you can get a loan on machinery, known as machinery loan or machinery finance, from many financial institutions. The maximum amount one can avail of under this loan is ₹ 2 crores.

How long does it take to disburse the money for a machinery loan?

There is no fixed timeline for the disbursement of the loan. It may take between 4 days to 4 weeks to disburse the loan.

Can machinery loans be mortgaged?

Yes, by putting up a piece of expensive machinery as a mortgage, one can avail of a machinery loan.

Is there any subsidy on machinery finance?

Few government schemes offer subsidies on machinery finance. These subsidies include the Small Industries Development Bank of India (SIDBI) and the Capital Subsidy Scheme (CSS) for upgrading technology via machinery and equipment.

Is a machinery loan a collateral-free loan?

Yes, a machinery loan is a collateral-free loan available from various financial institutions. The machinery loan interest rate may vary for these financial institutions and depends upon the nature of business and the profile of borrowers.

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