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Equipment financing is a loan facility offered by financial institutions to help businesses fund their machinery purchases and repairs. Using this loan product businesses can easily purchase advanced industrial equipment for their manufacturing facility to boost production.
Equipment financing explained
If you are an MSME who wants to invest in a fully automated textile machine armed with IoT and AI for your textile factory, the amount of money you will have to spend is huge. Equipment financing solves your funding worries, and this is tailored for purchase, lease and upgrade of machinery.
Here are some of the types of equipment that can purchased using equipment financing:
- Medical equipment
- Packaging equipment
- Manufacturing and processing equipment
- Construction equipment
- Electronics & appliances
- IT and office equipment
- Automobiles and allied industries equipment
- Aviation industry equipment
- Printing equipment
- Food processing equipment
Benefits and features of equipment financing
Here are the features and benefits of equipment financing:
- Equipment purchases are expensive therefore, equipment financing is designed to offer high loan amounts. Loans of up to ₹25 crore are sanctioned under equipment financing.
- This loan is a long-term loan which means that it will have long repayment tenure generally from 3 to 7 years.
- The Income Tax rules state that the interest paid on a business loan is tax deductible. Therefore, you will be able to deduct the total interest paid in an assessment year from the total tax to be paid for that assessment year.
- Equipment financing taken under hypothecation has no collateral requirement.
- These loans fund equipment purchase and upgrades to machinery. In the case of machinery purchases financial institutions give up to 90% of the purchase cost for new equipment and up to 75% of the purchase cost for used equipment.
- Online lenders who offer equipment financing usually have instant approval and quick disbursal time.
Given below are the eligibility criteria for getting an equipment finance loan sanctioned:
- The age of the applicant should be between 21 and 65 years
- The business should have been operational for at least 2 years (3 years in some cases)
- The average annual turnover of the company should be ₹10 Lakh
There are a few documents you will be asked for to apply for equipment financing:
- ID proof
- PAN card
- KYC documents of the company
- Books of accounts for the last 3 years from the date of loan application
- Bank statements of the past three years
- Tax returns from the last two financial years
- Details of the equipment to be purchased
- Quotation of equipment to be purchased
Banks that offer equipment financing in India
Have a look at equipment financing products from a few banking institutions of India and and their interest rates:
|Bank and loan product||Maximum loan amount||Interest rate (p.a.)|
|HDFC Bank – Commercial Construction Equipment Financing & Loan||Up to 100 % of the invoice value||8.5% – 16%|
|Bajaj Finserv – Medical equipment finance||₹6 Crore||14%|
|Union Bank – Union equipment finance||₹50 Crore||10% – 13%|
|IDBI Bank – IDBI Equipment Finance||₹5 Crore||
|ICICI Bank – Construction equipment loan||Up to 95% of the invoice value||Specific interest rate will be applicable based on customer profile, tenure of loan, relationship with the bank, etc.|
As shown in the table above there are different types of equipment financing like medical equipment finance, construction equipment financing, energy equipment financing, equipment and vehicle finance, etc., designed to suit specific industry needs.
There are also many government schemes for MSMEs that offer subsidies on the purchase of equipment.
For instance, the most prominent government loan for machinery purchase is the Credit Linked Capital Subsidy Scheme (CLCSS). This scheme was introduced by the government to facilitate technology upgrades by providing upfront capital subsidy to small scale industry units, including tiny, khadi, village and coir industrial units.
The subsidy is extended to businesses looking to modernisation of their production equipment and techniques. The Scheme provides 12% capital subsidy to small businesses for the induction of well-established and improved technology in selected sub-sectors/products approved under the scheme.
To apply to equipment finance loans, visit the official websites of banks and go through the details of each loan product thoroughly. Check interest rates, maximum and minimum loan amounts and terms and conditions.