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Steps to Take When Applying For a Machinery Loan

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Starting a small business is not only a decision but is like a journey which is bound to give a rich experience in the process. If the things are done rightly, this decision will also make you rich, financially. There are so many start-ups coming up with ideas to the market every day. For SMEs to sustain and grow, they need to have a financial backup; either by obtaining funding from investors or loan from banks or NFBCs.

The fund requirement and the time of when to get funding are different for different industries. For E-commerce or technology startups, the funding is required after coming up with the early version of the product. However, for sectors like the manufacturing, construction, packaging and others depend on proper machinery and equipment, which helps them carry out their operations.  The initial purchase and the setup costs of certain machines can be huge when considered with a machinery finance point of view. It is a smart way for the small business owners to get Equipment Financing from lenders as this will give him the freedom to use his own reserve funds more innovatively.

These Businesses are continuously dealing with the issue of the purchased equipment like wear and tear and also frequent up-gradations. As the technology advances, new equipment with extra appealing features are always being launched is always a preferred choice over the older versions. In such a situation, a standard loan can come in handy. There are several machinery loans available in the market which is specially customized for such needs.

To obtain a Machinery loan requires some analysis of which lender to choose. Determining the right lender, getting all the documents in place and ultimately channelizing the loan amount to optimum use needs to be worked out.

The steps to get things done are:

Determining which type of small business loan you want to apply for:

There are two choices – One is to borrow in a lump sum amount and then pay machinery loan interest rate on the entire amount. The other is to go for a revolving line of credit, where you can pay interest on the balance of the line and continue to repeat it once you pay off the amount. Both the methods have their advantages and disadvantages depending on what you are looking for. If you are buying a variety of machinery for your factory, you’ll most likely need a lump sum amount as a loan. If you are buying additional materials to scale your supplies, you can choose a revolving line of credit which can lessen the overall interest you have to pay back.

Choosing the right lender for your loan:

Choosing the right lender for your small business is one of the fundamental decisions that you have to make. Different lenders have different types of schemes and loans and their eligibility criteria differ as per their policies.

  • Banks- To apply for loans in commercial banks, you have to be extremely careful with the documents that you submit as the approval process is very strict. They minutely check every aspect of your application and have a strict process of background verification. The whole loan disbursal process takes up to 2 months. Therefore, if you choose to apply with a bank, keep some buffer on the timeline.
  • Non – Banking Financial Corporation (NBFC): These are the recommended option for small businesses as the NBFCs have better approval policies and are open to uncommon industries and risk types. They tend to understand better the importance of a timely cash flow and the loan disbursal process takes a much lower time than that of a commercial bank.
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