Equipment Financing: Benefits and Eligibility

What is equipment financing? Equipment financing is a loan facility offered by financial institutions to help businesses fund their machinery purchases and repairs. This type of loan provides businesses with the necessary funds to purchase or provide equipment lease of advanced industrial equipment. So, what is an equipment lease? It is a lease which can significantly enhance the production capabilities of a business.

Suppose you are a small or medium-sized enterprise (SME) looking to upgrade your manufacturing facility with cutting-edge technology like IoT and AI-enabled machines. In that case, the cost can be quite substantial. However, equipment financing is designed to solve this funding challenge by offering tailored solutions for purchasing, leasing, and upgrading machinery.

In this article, we will explore what is an equipment loan, the equipment finance advantages and features of equipment financing. We will also find the eligibility criteria for obtaining such a loan, and provide insights into how it can benefit your business.

Business Equipment Financing Benefits

When considering equipment financing for your business, it’s important to understand its unique benefits and features. Here are some key advantages:

1. High Loan Amounts: Equipment purchases are often expensive. Therefore, financial institutions offer high loan amounts under equipment financing schemes. Loans of up to ₹25 crore are sanctioned under this facility.
2. Long Repayment Tenure: Equipment financing loans typically have long repayment tenures ranging from 3 to 7 years. This allows businesses to spread out their repayments over an extended period, reducing the burden on their cash flow.
3. Tax Deductible Interest: The Income Tax rules state that the interest paid on a business loan is tax deductible. Therefore, businesses can deduct the total interest paid in an assessment year from the total tax payable for that year.
4. No Collateral Requirement (Hypothecation): Equipment financing taken under hypothecation does not require collateral. This means businesses can obtain the necessary funds without pledging any other assets as security.
5. High Loan-to-Value (LTV) Ratio: Financial institutions provide funding for a significant portion of the equipment’s purchase cost. In the case of machinery purchases, institutions may offer up to 90% of the purchase cost for new equipment and up to 75% for used equipment.
6. Quick Disbursal: Online lenders who offer equipment financing usually have instant approval processes and quick disbursal times, enabling businesses to access funds promptly. There are many platforms with business loans that can match your funding requirements with loan options from multiple lenders in India, offering attractive interest rates.

Eligibility Criteria for Equipment Financing

To be eligible for an equipment finance loan, businesses must meet certain criteria. Here are the key eligibility requirements:

1. Age of Applicant: The applicant’s age should be between 21 and 65 years.
2. Operational Experience: The business should have been operational for at least 2 years, though some lenders may require a longer operational history.
3. Annual Turnover: The average annual turnover of the company should be ₹10 lakh or more.
4. Required Documents: To apply for equipment financing, businesses will need to submit various documents including ID proof, PAN card, KYC documents of the company, books of accounts for the last 3 years, bank statements from the past three years, tax returns from the last two financial years, and details of the equipment to be purchased along with quotations.

Example Scenario 1: Construction Equipment Financing

What is a construction equipment loan? Let’s consider a scenario where a construction company wants to purchase new machinery for their upcoming projects but doesn’t have the necessary funds upfront. In this case, a construction equipment loan can be a viable option for them.

Suppose the total cost of the required construction equipment is ₹50 lakh. With equipment financing, they can secure up to 90% of the purchase cost from a financial institution. This means they can obtain a loan of up to ₹45 lakh to finance their machinery purchase.

Additionally, one of the equipment financing benefits is that it allows for long repayment tenures, the construction company can choose a repayment period that aligns with their cash flow and project timelines. They can opt for a repayment period ranging from 3 to 7 years, making it more manageable for them to repay the loan.

Example Scenario 2: Medical Equipment Lease

Consider a scenario where a healthcare facility wants to upgrade its diagnostic equipment to provide better services to its patients. Instead of purchasing the equipment outright, they decide to opt for an equipment lease arrangement.

By entering into an equipment lease agreement, the healthcare facility can acquire the latest medical equipment without the need for a significant upfront investment. The lessor will own the equipment, and the lessee (healthcare facility) will pay regular lease payments for the duration of the agreement.

One of the main benefits of an equipment lease is that it allows businesses to conserve their working capital. Instead of tying up a large sum of money to purchase equipment, they can allocate those funds towards other operational expenses or growth opportunities.

Conclusion

Equipment financing offers several benefits for businesses looking to purchase or upgrade machinery. It provides high loan amounts, flexible repayment tenures, tax-deductible interest, and quick disbursal times. Additionally, there are various options available for different industries such as medical equipment finance and construction equipment loans.

Before applying for equipment financing, make sure your business meets the eligibility criteria and gather all required documents. Research different bank offerings to find competitive interest rates and terms that align with your business needs.

To explore available options for equipment financing visit Tata Capital’s website or contact their expert team who can assist you in finding suitable loan options tailored to your business requirements and objectives. Download the Tata Capital app now to get the best available equipment finance loan.