Modern machinery augments the growth of the business. Spending capital fund for buying machinery is a challenging venture and involves risk factors. Therefore, the financial institution offers a machinery loan to speed up the growth in a planned and manageable approach.
However, before taking any loan, borrowers should assess the real needs, profitability, and affordability to repay it.
9 common mistakes to avoid while applying for a machinery loan
Purchasing new machinery is highly expensive and involves high maintenance. Therefore, make a strategy before investing or taking a machinery loan. Some of the common mistakes are enlisted here that one should avoid while applying for a machinery loan:
Not counting credit line
NBFCs offer startup loan for a new business to grow corpus, buy machinery, or spend in other verticals. However, one must consider the following factors before availing a business loan to avoid financial loss-
- Investment strategy to make a profit.
- Total loan amount and interest payable.
- Repayment capabilities.
- Risk factors and steps to overcome those.
Miscalculating efficiency
Before you plan to invest in any machine, calculate its efficiency or else it can burden up your liabilities. Check the following factors:
- How will the machine augment the growth of the business?
- Does the operation have real-time requirements of a machine, or it is just nice to have?
- How much time, effort, and energy will be saved by installing the machine?
- How will the workforce utilise the time saved by the machine in generating profit?
Lacking proper storage plan
Cost and efficiency in storage are some of the most important factors to focus on. Individuals often use a startup loan for new business in buying updated machinery without calculating the cost of storage. Nevertheless, many established corporate houses make the same mistake.
If you cannot station the machine in the right place, its efficiency will reduce before time. On the other hand, if storage costs exceed profit, it will be a wrong investment.
Overlooking operation cost
The cost of operating the machine is an important point to consider. It includes the cost of:
- Manpower
- Energy consumption
- Raw materials
- Waste disposal
- Delaying on insurance
To be secured against any loss or damage, insurance is most necessary. Often business owners apply for machinery loans without including the cost of insurance. Insurance should be taken from the first day.
- Tax benefits
Machinery loan comes under the business loan; therefore, it has some tax exemptions. Taking a business loan without knowing the tax benefit may affect the planning of income tax liability.
- Overspending
Analyse your budget and the benefits of machinery loans before applying for one. Also, check the pros and cons of a new machine vs an old machine. If the latter one can make out your necessary work, then refrain from buying a new one.
- Eligibility criteria and credibility
“What are the eligibility criteria for a business loan” is one of the most commonly asked questions around machinery loans. One must avoid applying for a loan without knowing its eligibility criteria, terms and conditions, and other repayment procedures that may incur future problems.
If a loan gets rejected by one financial institute, it may incur subsequent rejections in time.
Repayment calculation
Before availing a loan, one must know the repayment process very well. Missing out on any EMI affects the credit score and also incurs penalty charges. Business loans come with a longer repayment tenor; however, a longer tenor significantly increases the total interest outgo.
Some financial institutes like Bajaj Finance offer the Flexi business loan that allows the borrower to pay interest only on the withdrawn amount and not on the total amount taken as a loan. To upgrade old machinery, borrowers can avail of a loan of up to Rs.45 lakh or as per eligibility.
To maximise the benefit of a business loan, many renowned lenders like Bajaj Finserv extend pre-approved offers. Individuals can check their pre-approved offers by sharing essential contact details with the lender.
The Indian Government has extended financial support to corporate houses as a business loan to subside the crunching economic crisis hit by the pandemic. Machinery loan has helped many startups and corporates to provide advanced service. Besides, online loan applications have made it easier for entrepreneurs to avail themselves of a business loan and boost their businesses.
Additional Read: Top Gold Loan Interest Rate Comparison in India
