Upgrading to advanced machinery enhances business growth, especially those who are heavily involved in manufacturing and production. Also, the constant requirement of capital to run a business makes it difficult for an entrepreneur to upgrade to advanced machinery instantly. Machinery Loan is an optimal financial source to upgrade to advanced machinery. With Machinery Loan, entrepreneurs can fulfil the business ambitions and goals. Before you apply for a Machinery Loan, you must know Machinery Loan questions.
6 Common Questions About Machinery Loan
1. 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.
2. 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
3. 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.
4. 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.
5. 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.
6. 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 Poonawalla Fincorp to fund your business needs.
