Modernising your equipment helps your firm flourish, especially if you’re actively involved in production and manufacturing. Additionally, an entrepreneur finds it challenging to update to cutting-edge equipment right away due to the ongoing need for funds to operate a business. The best funding source for upgrading to more advanced machinery is a machinery loan. Entrepreneurs can realise their business aspirations and objectives with a machinery loan. You must be familiar with the machinery loan questions prior to applying for a loan.
6 Common Questions About Machinery Loan
How Much Amount Can I Borrow with a Machinery Loan?
The borrowing amount of a machinery loan depends on various factors such as the size of the business, type of machinery, number of machineries, company finances, etc. While you avail for a machinery loan, your potential lender will consider your credit score, your business’s current performance, future growth potential, etc. You must follow a general rule of thumb: maintain a good credit score. Higher credit scores increase your chances of securing your desired loan amount at favourable terms.
What Are the Eligibility Criteria and Required Documents for an Equipment Loan?
The exact documents and eligibility criteria will be different depending on the lender you pick, but here are a few of the common ones.
Eligibility Criteria:
- You need to be an Indian citizen.
- You need to be of at least 25 years of age and less than 65 years old.
- Your business vintage must be at least 3 years.
Some of the Required Documents:
- KYC documents.
- Latest bank statement of all your active accounts from the last 6 months.
- Balance sheet
- Profit and loss report
- Audit reports
What are the benefits of a Machinery Loan?
The most important benefit of machinery and equipment loan for business is it provides you with the funds to help you buy the equipment of your choice. With additional funding, you get to retain most of your working capital. So, your primary expenses stay unaffected, and you have enough funds to manage your unexpected spending.
What Will Be the Duration of the Machinery Loan?
Most lenders offer flexible loan tenure, but it differs among them. Depending on your financial planning, you can opt for a short-term and long-term tenure. If you opt for high EMIs and want to repay your loan faster, avail of a short-term loan. On the other hand, long-term loans can be spread out over multiple years and have smaller EMIs. Consider this option, as committing a smaller amount of money for the repayment is more convenient.
For example,
you have taken a loan of ?10 Lakh at an interest rate of 10% p.a. If you opt for a short-term loan with a tenure of 2 years, the EMI will be a little over ?46,000. When you set its tenure to 5 years, it becomes a long-term loan with an EMI that amounts to around ?21,000. Consider your business’s current and future expenses and income while deciding your loan duration.
What Are the Tax Benefits of Equipment Financing?
The machinery purchased using the borrowed funds should be classified as a business expense. This makes you eligible for a tax deduction on your loan’s interest amount. As a result, your total taxable income will reduce, as will the amount of tax you have to pay. Remember that this same benefit does not apply to your loan’s principal amount. Another advantage of purchasing a machine is that it becomes an asset for your business, strengthening your balance sheet.
Am I Required to Describe my Business Plans to Potential Lenders?
Yes, lenders prefer entrepreneurs who have a clear business plan in place. It should give them an understanding of what your business is and how it will generate revenue. They will also want to know why the machine is required for your business and how you will use it best. In simple words, you need to justify your purchase and explain to them how you will repay their debt.
Conclusion
A Machinery Loan can enable you to achieve bigger goals and elevate your business’s trajectory. It is a great lending tool; just like every tool, you need to know it well to get the most out of it. Now that you have the answers to the most common questions about Machinery Loan consider choosing Credit Success to fund your business needs.
