Equipment financing is a financial instrument that offers funding to business owners for them to purchase new machinery or upgrade existing equipment/machinery. Equipment financing comes in handy for both MSMEs and large enterprises. Business owners and enterprises availing equipment loans also enjoy tax benefits. The interest rate, loan amount, and loan tenure may differ from bank to bank. Additional options linked with equipment leasing include finance leases, hire purchase arrangements, operating leases, etc.
Interest rates of Equipment Financing
| Bank/NBFC | Interest rate (p.a.) (2023) | Type of Equipment Loan |
| Bank of Baroda | Competitive interest rate | Construction and mining equipment |
| HDFC bank | Bank IRR: Min. 7.50% – 14.92% p.a. | For commercial or construction equipment only |
| ICICI bank | At the sole discretion of the bank | Construction loan |
| Kotak Mahindra bank | As per min. prevailing MCLR & max. up to 24% p.a. | · Farm equipment
· Construction equipment |
Note: The mentioned interest rates, fees, and charges are subject to change and depend on the sole discretion of the bank, NBFC, and RBI. GST and service tax shall be levied extra on the mentioned fee & charges.
Eligibility Criteria
There are certain eligibility criteria set up by banks, some of the eligibility criteria are as follows:
- The individuals from corporations, partnerships, trusts, proprietorships, public firms, private firms, contractors (from the construction site or mining activity)
- The minimum age should be 21 years when availing a loan and the maximum 65 years at the time of maturity of the loan
- The company should be making a profit for the last 3 years and is stable (geographical basis) in the business for the last 2 years
- Income Tax Return (ITR) statements for the last 2 years
Also Know: Eligibility Criteria and Documents Required for Business Loan
Documents required
The documents will be required when applying for an equipment loan. It is used to verify your details and will help you to take the loans. Thus the following documents will be needed to submit when applying for an equipment loan, they are as follows:
- KYC documents
- ID proofs: Aadhar card, PAN card, Passport, Voter’s ID
- Resident address proof
- Business address proof
- Business registration proof:- Partnership deed/ Certified copies of MOA / AOA
- Last 6 months’ bank statement
- Recent passport-size photos of the applicant or co-applicant
- Last two years of income tax returns and audited financials
- Details of suppliers and machinery name
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Benefits of Equipment Financing
There are benefits for business owners who are availing for equipment loans, some of the benefits are mentioned below and they are:
- Some of the lenders offer up to 100% finance for new equipment, many at 90% or low
- Equipment Finance offered by banks and NBFCs is mostly collateral free or termed unsecured loans
- Most financial institutions will give pre-approval in equipment finance, so it will be the hassle-free procedure for the borrowers
- Flexible loan options are provided to customers to repay the amount as per their convenience and budget
- Interest rates offered are competitive and shall depend on the repayment history and creditworthiness of the borrower
Types of Equipment loans
There are types of equipment loans which are offered by banks and NBFCs based on the requirements of the business owners and enterprises. Thus the types of equipment loans are as follows:
1. Manufacturing equipment loan
This loan is for those people who want to use this equipment for manufacturing goods in their business.
2. IT and office equipment loan
This type of loan is exclusive for office businesses that need IT equipment like computers, laptops, projectors, servers, and other office supplies and electronics, etc.
3. Construction equipment loan
This type loan is for business companies that are into construction and the loan will provide equipment used in construction.
4. Corporate Aviation equipment loan
This type of loan is for the aviation industry and the loan will provide equipment-related funding that can be used at airports and in-flight.
5. Medical equipment loans
This type of loan is for the medical industry and the loan will provide equipment related to hospital and clinical staff.
6. Electronic and appliances
This type of loan will provide a loan amount for electronics and appliances for a company.
Read Also: What are the types of working capital loans?
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Types of Equipment and Machinery items
Equipment loan can be availed in order to purchase types of machinery and equipment as mentioned below:
- Compactors
- Fork Lifts
- Crushing Plants
- Drills
- Road Rollers
- Compressors
- Dozers
- Tipper/Dumpers
- Hot Mix Plants
- Wheel Loaders
- Reach Stackers
- Cranes
- Backhoe Loaders
- Excavators
- RMC Plants
- Graders
- Concrete Pumps
- Transit Mixers
- Pavers
- Rock Breakers
- DG Sets, etc.
The tenure option for most of the banks will be 5 to 7 years, but mostly it will depend from which bank you are availing loan and the nature of your business.
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