Machinery loan without Security in India – All you need to know about it

Machinery & equipment are one of the most important assets for any business, as it determines the quantum of goods & services that can be delivered. T of the business is highly dependent on the quality of machines used in the production. Better the quality, lower will be the cost of production and higher will be the profitability of the business. Constant upgradation of these machines with higher standards and quality is important, as outdated machines tend to increase overhead costs, consume higher machine time and labor hours. 

However, purchasing new machines requires heavy capital investment & extra collateral. Hence most of the small and medium businesses, especially MSME, find it difficult to purchase new machines with the latest technology to compete in the market. In such a scenario, unsecured machinery loan offered by banks and NBFCs plays a vital role for such businesses. 

In India, machinery finance is offered by many private banks and non-banking finance institutions (NBFCs). These loans have the following features:

- Machinery loans without security are available for industries like Manufacturing (Machine tools), Plastic, Printing, Packaging, Food, Pharma, etc.

- Loan is available for the purchase of new machines or against the invoice of already purchased machines, not more than 2-3 months old. 

- This collateral-free machine loan can be availed without giving any extra security to the bank. The machine which you are purchasing is only considered as the security for the loan up to Rs.2 crores.  Above Rs.2 crore loan, extra collateral security is required in the form of property, investments like an insurance policy, mutual funds, bonds, etc. 

- Loan offered is 70 % to 85 % of the all-inclusive price of the machine. The remaining portion is considered as margin money, which is required to be paid by the borrower after the loan is sanctioned but before the disbursement of the loan.

- Machine finance is generally provided by these banks for standard machines, purchased from authorized dealers. Nonstandard machines can also be funded depending upon proposal to proposal.

- Loan repayment period for such machine loans ranges from a minimum of 2 years to a maximum of 5 years.

- The important thing here to note is that, along with machine cost, loan sanction will also depend upon the financial eligibility of the borrower. The required loan can't be sanctioned for a borrower if financial loan eligibility is not met, even if the borrower is ready to pay the required margin money for the machine purchase. 

- To become financially eligible for the machine loan, the borrowers should meet some of the basic criteria like - Minimum business stability of 3 years in the same line of business, having a minimum turnover of Rs.30 lacs, satisfactory repayment history, and maintaining sufficient growth in the business. 

- We at SMEFundings help business borrowers to find the best suitable online business loan option in the market with a single click, without charging any fees. It’s totally a free-of-cost service for customers. 

- The basic documents required for machinery loans are:

• Last 3 years ITR, computation & Financials of the business. 

• 12 months Bank Statements of all business accounts. 

• GSTR3B for the last 12 months  

• Business Registration, MOA/AOA, Pan, Address Proof.  

• KYC of promoters/directors

• Existing loan details, if any

• Orders in hands