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What is Machinery Loan? Factors to Consider Before Applying for Machinery Loan

Some businesses are capital intensive and require plant and equipment. However, the companies may not have sufficient money to acquire machinery. A machinery loan helps business owners purchase the required plant and machinery to maximize operational efficiency.

Several banks and Non-Banking Financial Companies (NBFCs) offer machinery loan to business owners to purchase expensive plant and equipment. The borrowed money is repaid in Equated Monthly Installments (EMIs).
Here are four things covered by such loans.

1.    Purchase of new construction equipment
Construction equipment such as motor graders, backhoe loaders, crawler cranes, wheel loaders, and others requires huge investments. Additionally, road construction companies require equipment like vibratory compactors, senor pavers, and pavers. Capital finance is an excellent way to meet these huge investments.

2.    Acquire used equipmentCompanies may acquire used equipment to save capital costs. The used equipment may be deployed in new or ongoing projects. Several financial institutions offer competitive business loan interest rate to acquire used equipment. Additionally, the money may be repaid in flexible repayment tenure that makes it easy to make timely payments.

3.    Funding large equipment purchaseBusinesses may require general machinery or heavy-duty equipment for smooth operations. Large equipment such as barge and harbor cranes is a huge capital investment. Some companies may invest their profits to fund such purchase; however, this is not a financially prudent option. The businesses block funds that may be used for other purposes. It is recommended companies apply for a business loan to fund the large equipment purchase.

4.    Equipment leaseCompanies may opt for a finance or operating lease, hire purchase, or leaseback of machinery. They may also rent heavy-duty equipment such as piling rigs, cranes, and excavators to reduce capital investments. A business loan may be used to lease such machinery.
Before applying for a machinery loan, here are three factors to consider:

1.    Understand business needsCompanies must thoroughly understand their need for plant and equipment. In case organizations already own some machines, they must check production capabilities to determine how the new equipment will boost productivity. Additionally, companies must research and evaluate different options before making their final decision.

2.    Comprehend space requirementsTo maximize operational efficiency, machinery requires adequate space. If placement is not planned properly, there is a possibility of accidents or inefficient productivity. It is recommended that businesses prepare a layout plan before purchasing the plant and machinery.

3.    Determine new or used equipment
If maintained properly, used equipment helps saves huge capital expenses. It is cheaper and requires lower investment. However, used machinery may require higher maintenance.

A business loan is beneficial in funding the purchase of plant and machinery. Here are the eligibility criteria:
·         The company must be in existence for at least three years
·         Turnover should exceed INR 1 crore
·         Profit after tax for preceding two years must be positive
·         Good credit score
·         Minimum age 28 years
·         Maximum age at maturity 68 years
Here are the documents required for a business loan:
·         Photo identity proof
·         Address proof
·         Income proof
·         Business proof
The procedure to avail of a loan is simple, quick, and easy. Companies may apply online directly through the lenders’ websites. Once the documents are collected and verified, the loan application is sanctioned, and funds are transferred to the company’s account.
Get business finance and bring the latest plant and machinery to boost profits.
What is Machinery Loan? Factors to Consider Before Applying for Machinery Loan What is Machinery Loan? Factors to Consider Before Applying for Machinery Loan Reviewed by Rajesh singh on 1:02 PM Rating: 5