A new machine can raise your output, but the loan behind it works best when it is planned before the order is placed. Lenders look at your business, the machine you plan to buy and whether the extra income can carry the repayments.
- Get a proper quotation or proforma invoice from the supplier first.
- Plan your own contribution (margin) and the extra costs, such as transport, installation and taxes.
- Show how the machine will raise income, and check that EMIs fit your monthly cash flow.
- Do not place a firm order before you know the lender's process and terms.
Plan the purchase first
- Decide the exact machine, make and model, and whether it is new or used, since lenders treat them differently
- Take a written quotation or proforma invoice from the supplier
- Ask about delivery time, installation, warranty and service support
- Note the extra costs on top of the machine price, such as transport, installation, taxes and insurance
How a machinery loan usually works
The lender usually finances a part of the machine's cost, and you bring the rest as your own contribution, often called the margin. The machine itself is commonly the security for the loan, and lenders often pay the supplier directly against the invoice.
The exact share, charges and process differ from lender to lender, so confirm them with your adviser before you commit to the supplier.
Documents to keep ready
- KYC of the business and its owners: PAN, Aadhaar and address proof
- Business proof: GST registration, Udyam or other licences, and business address proof
- Income tax returns, balance sheet and profit and loss statement for the last two to three years
- Bank statements, usually twelve months or more
- The machine quotation or proforma invoice, with technical details
- Proof of your own contribution, such as a bank statement showing the funds
- Details and sanction letters of existing loans
What lenders look at
- How long your business has been running and how steady it has been
- Your turnover, profits and bank account conduct
- How the new machine will add to your income or cut your costs
- Your credit history and existing EMIs
- The supplier's standing and the machine's useful life and resale value
Plan the repayment
- Estimate the extra monthly income the machine can realistically earn, and be careful rather than hopeful
- Check that the EMI fits your cash flow even in a slow month, if your business is seasonal
- Allow for the time between delivery and full production
- Keep a small cash buffer for repairs and delays
Mistakes to avoid
- Placing a firm order or paying a large advance before you know the loan process
- Forgetting the extra costs on top of the quoted price
- Quotation, invoice and application details that do not match
- Choosing a repayment period only to lower the EMI, without checking the total cost
This article is general information, not financial, legal or tax advice. Figures and examples are illustrative. Finexa Capital (Priyanka Enterprise) is a loan referral partner (DSA). Final approval, interest rate and terms are decided solely by the lending bank or NBFC.