Can You Get A Collateral-free Machine Loan?
Machinery and equipment is the most important asset for a business as it increases the overall production and revenue of the business. Maintenance and timely upgradation of machinery and equipment is the first and foremost thing to do. Equipment is costly and upgradation and repairing of the same can cost a heavy amount to the company which might affect the current operation of the company. With the help of machinery loans, companies/businesses can bear the cost of equipment without hurting the current ongoing operation.
What is a Machinery Loan?
Machinery loan helps businesses obtain finance to purchase new machines and repairing of the same in case of breakdown. Companies can avail this benefit with the affordable rate of interest rates. Machinery loan is of two types secured and unsecured loans. Loans with the collateral agreement are secured and the collateral free loans refer to machinery loan for business without security. There are innumerable financial institutes NBFCs which provide both secured and unsecured loans. If a company is not willing to risk a share of its assets then collateral-free machinery loans are the best thing to opt since it doesn’t demand any agreement.
Benefits of collateral-free loans
- No collateral or third party guarantee needed.
- No track record requirement.
- Attractive rate of interest.
- Letter of credit/bill discounting up to 180 days.
- A Quick and hassle-free process of application and quick sanction of the fund.
- The Company should be registered with SME/SSI registration.
- Share allotment proof.
- Share purchase agreement.
- The Company should have a minimum vintage of 3 years.
- Previous year turnover should be properly audited by a CA.
- Business should have filed Income Tax Returns for last years.
Reasons to apply for Machinery Loans:
- Expansion- expanding the branches of the company means more equipment will be required which will be added to the expense sheet of the company. In this case, short-term machinery loans can be of great help.
- Untimely breakdown- machines are the core asset of a company, an untimely breakdown can be crucial and company can incur a loss because of the loss of equipment especially the manufacturing sectors.
- Upgradation- with the advancement of technologies companies need to upgrade their equipment in order to fulfil the market demand.
Providers of Collateral-free Loans
- Banks- talk about loans and the banks are the first thing comes to mind. There are numbers of listed Banks which provide both collateral and collateral free machinery loans with a competitive rate of interest. But the documentation process and the list of documents required is long and lengthier. So if the company needs instant funding this is not the best option to avail the machinery loans. Plus bank prefers high credibility so companies must acquire a good credit score lack of which might affect the loan application.
- Peer-to-peer lending- this type of funding is one of the low-risk ways where one’s friends, family members, multiple local investors provide the fund.
- NBFCs- these are non-banking financial institutes which provide both secured and collateral free loans with an affordable rate of interests. An advantage of NBFCs is that unlike banks these require minimal documentation process and after quick verification, they quickly allocate the funding. Another plus point to opt for NBFCs is that bad credit score won’t act like a hindrance for the application.
How to apply for Machinery Loans?
- Choosing the Right Window: First and foremost step would be choosing the appropriate lender as it will not only provide the required instant machinery fund but also help businesses to avail opportunities in the long future.
- Application for the Loan:After choosing the right lender company needs to fill up the application form. Nowadays online application form is available which is more reliable and quick.
- Documentation: After filing application, company needs to update documents for verification after completion of which the required fun will be sanctioned.
Tips to be followed
- Companies before applying for machinery loans must compare the rate of interests the lenders are charging.
- Companies must do a thorough research about how many loans they need and how many months/year will they require to repay the same, with the help of the EMI calculator companies now can track how they will repay the money.
- Documents like registration papers, ITR, GST filing papers KYC papers of the company etc. should be handy.
As discussed, machinery loan can be the helping hand for the companies looking for expansion and upgradation of equipment and can boost the overall production. But before taking any decision companies should compare the prices and the benefits they will be gaining from the lenders and they must build up a healthy relationship with the lender for future endeavours.