The concept of Equipment finance is considered to be a revelation from the perspective of all the business persons under MSME (Micro, Small and Medium Enterprise) sector which require constant up-gradation and modernisation of the equipment and machines used for the production of the finished products. Equipment finance in India is believed to be a stupendous opportunity in form of a financial instrument offered by banks and NBFCs that provides funding to business owners to purchase new machinery or upgrade existing equipment or machinery to increase the output by modernising their plants and decrease the cost of production for higher profitability.
Who are Preferred Borrowers for Equipment Finance?
Equipment finance in India are mostly provided by the banks and NBFCs to both MSMEs and large enterprises. Business owners and enterprises availing equipment finance in India also enjoy tax benefits.
The rate of interest, amount of loan, and tenure differ from lender to lender. Apart from these there are some additional options which can also be linked with equipment finance in India which include finance leases, hire purchase arrangements, operating leases, etc.
How Equipment Finance help to Develop Business?
Equipment finance in India offers loans for equipment and machinery to the existing businesses those are not financially capable to procure new machinery or equipment or upgrade the existing machinery for the development planning.
Equipment finance in India can be opted for any business classified as a small to medium enterprise or a large enterprise. The loan amount, the interest rate, the tenure for repayment and other aspects towards the loan varies as per the profile of the business entity and the lending bank or NBFC.
Every bank or financial institution offers a curated loan experience to match the financial objectives of the concerned business by minimising the production cost with the procurement of more advanced and efficient machinery or equipment and also by increasing the production capacity to its optimum installed capacity.
What are the additional options available with Equipment Finance?
Equipment finance in India provides additional options such as hire purchase arrangements and equipment leasing, including finance leases and operating leases. When a machinery or an equipment is procured by availing Equipment Finance, the asset in question is automatically considered as a collateral against the loan.
In case of any default by the borrower, the lender has the authority to seize the asset and recover the funds—the risk factor for equipment finance in India is low with a relatively low-interest rate.
What are the Benefits of Equipment Finance?
There are huge benefits for business owners particularly those who are under MSME segment who are availing for equipment finance in India, of which some of the benefits are mentioned below as under:
(I) There are fistful of lenders in form of banks and NBFCs who offer Equipment Finance in India and that too with an offer which can go up to 100% financing for the purchase of new equipment or machinery. However, the percentage of financing varies from lender to lender.
(II) Equipment Finance is considered to be a secured loan and the equipment or machinery is considered as the primary collateral by the lender bank or NBFC. In some cases secondary collateral can also be asked in form of residential or commercial property or fixed deposits and LIC as lien.
(III) Primarily the lending bank or NBFC offer pre-approval to most borrowers based on the profile and financials under an Equipment Finance loan to provide a hassle-free and seamless procedure.
(IV) Another benefit of equipment finance in India offers flexible repayment options depending on the business financial budget and prepayment ability.
(V) Interest rates provided through an Equipment Finance loan are at competitive rates and depending on the borrower’s creditworthiness. Most banks customise the interest rate as per the business requirement.
(VI)Interest rates offered by lending bank or NBFC are competitive and mostly depend on the repayment track record or history and creditworthiness of the borrower subject to then financial eligibility and price of the equipment or machinery.
What types of Equipment or Machinery are financed under Equipment Finance in India?
There are various types of equipment or machinery which are financed by banks and NBFCs based on the profile and requirements of the business owners and enterprises under equipment finance in India. Thus the types of equipment that are commonly financed are as follows:
1. Manufacturing equipment:
Manufacturing equipment and machinery like milling machine. Drilling machines,turning machines,Quality testing machines etc. This loan is for those people who want to use this equipment for manufacturing goods in their business.
2. IT and office equipment:
IT equipment and office equipment which are required for office purposes of both manufacturing and service industries like computers, laptops, projectors, servers, and other office supplies and electronics, etc. are also financed under equipment finance in India.
3. Construction equipment:
The business and which are related to construction are also financed for the equipment and machinery like cranes, bulldozers, excavators, backhoes, compact track loaders, skid steers, motor graders, trenchers etc. are financed under equipment finance.
4. Medical equipment:
Medical equipment and machinery those are used exclusively used for the purpose of medical tests and treatments in the medical industry specifically related to hospitals, diagnostics centres and clinical staff are financed under the various programmes of equipment finance of banks and NBFCs.
5. Electronic and appliances:
Equipment finance in India also provide equipment and machinery loans from banks and NBFCs for the electronics and appliances for a business entity engaged in for the manufacturing and service of equipment used in the production and manufacture of batteries, cables, lamps and domestic electrical appliances which are highly automated.
What is the Eligibility Criteria to apply for Equipment Finance in India?
(I)There are certain eligibility criteria set up by banks and NBFCs in general of which some of the eligibility criteria are as follows:
(II) The applicant can be an individual who runs the business as a proprietor , any individuals from corporations, partnerships, trusts, proprietorships, public firms, private firms, contractors (from the construction site or mining activity).
(III) The minimum age should be 23 years when availing a loan and the maximum 70 years at the time of maturity of the loan.
(IV) The company should be making a profit for the last 3 years and is stable and within the geographical limit set by the lending banks and NBFCs in the business for the last 3 complete years.
(V) Income Tax Return (ITR) statements for the last 2 years and GST registration with GST returns are required to be submitted along with the applicable licences as per the requirement for the business.
What are the Documents required for the successful application of Equipment Finance?
The documents will be required when applying for an equipment finance. It is used to verify the details and will help to take the loans. Thus the following documents will be needed to submit when applying for an equipment finance in India, they are as follows:
KYC documents of the proprietor or partners or directors.
ID proofs in form of company pan card, Aadhar card, PAN card, Passport, Voter’s ID etc. as ID proofs of the proprietor or partners or directors.
Residential address proof all the concerned persons of the company.
Business address proof in form of trade licences, Udyam Aadhaar registration certificate and professional tax.
Business registration proof to be submitted in form of Partnership deed or certified copies of MOA or AOA.
Last one year bank account statements of all the bank accounts in operation.
Recent passport-size photos of the applicant or co-applicant
Last two or three years of income tax returns and audited financials as per the requirement of the lending bank or NBFC.
Details of suppliers and equipment or machinery name with catalogue and proforma invoice from the registered merchant dealing with such equipment or machinery.
Now that it is known to everyone that what Equipment Finance means, the benefits of the loan and the types of equipment and machinery eligible for procurement through the loan. So it is very much easy for a person to plan for the next business equipment expansion efficiently.
