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What are the eligibility criteria for taking an equipment loan?

Eligibility Criteria for Taking an Equipment Loan in India

In the rapidly growing Indian economy, businesses across various sectors require the right equipment to stay competitive and thrive. Equipment loans offer a suitable financial solution, enabling businesses to purchase or lease the machinery they need to maintain their growth trajectory.

This article will help you understand the eligibility criteria for taking an equipment loan in India.

Business Entity:

The first eligibility criterion for an equipment loan is the business entity type. Loans are available to different types of business entities such as sole proprietorships, partnerships, limited liability companies, and private or public limited companies. The specific requirements may vary depending on the lender, but the general eligibility remains the same.

Business Continuity:

Lenders prefer to provide equipment loans to businesses with a proven track record. Most banks and financial institutions require businesses to be operational for at least two years before they consider providing an equipment loan. This shows the lender that the business has a history of stability and income generation.

Annual Turnover:

Another critical factor in determining eligibility is the annual turnover of the business. Lenders use this as a measure of the business’s financial capacity and its ability to repay the loan. The minimum annual turnover requirement varies from lender to lender, but generally, it ranges from INR 10 lakhs to INR 1 crore. The higher the turnover, the better the chances of getting the loan approved.

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Credit Score:

Both the business and the business owner’s credit score play a significant role in the approval process of an equipment loan. A good credit score demonstrates financial discipline and creditworthiness, increasing the chances of loan approval. While the required credit score varies from lender to lender, a CIBIL score above 700 is generally considered favorable.

Collateral:

Equipment loans are typically secured loans, which means that the borrower must provide collateral to secure the loan. The collateral can be the equipment itself or any other assets, like property or fixed deposits. The value of the collateral should be equal to or greater than the loan amount. This ensures that the lender can recover the loan amount if the borrower defaults on the repayment.

Debt-to-Income Ratio:

The debt-to-income ratio is another crucial factor that lenders consider when assessing a business’s eligibility for an equipment loan. This ratio indicates the proportion of the business’s income being used to repay existing debts. A lower debt-to-income ratio indicates that the business has sufficient income to manage the additional loan repayment. Lenders typically prefer a ratio of 40% or lower.

Purpose of the Loan:

The purpose of the equipment loan should align with the business’s growth and expansion plans. Lenders need to ensure that the loan will be used to purchase or lease machinery, equipment, or vehicles required for the business’s operations. This can include manufacturing equipment, medical devices, construction machinery, and other types of essential business equipment.

Documentation:

To process an equipment loan application, lenders require various documents to verify the eligibility of the business. Some of the essential documents include:

  • Business registration certificate
  • GST registration certificate
  • PAN card of the business and the proprietor/partners/directors
  • d. ITR for the last two financial years
  • e. Bank statements for the last six months
  • Audited financial statements, including balance sheets and profit and loss accounts
  • Proof of business address
  • Quotation for the equipment to be purchased or leased
  • Equipment loans offer businesses the financial support they need to grow and expand. By understanding the eligibility criteria and preparing the required documentation, businesses can improve their chances of securing an equipment loan. However, it is crucial to choose the right lender, compare interest rates, and negotiate terms.

In this context, platforms like Refer Loan can be immensely helpful in identifying the best loan option tailored to your business needs. Refer Loan simplifies the process by assisting you with documentation, providing guidance, and ensuring fast loan processing.

By leveraging their expertise, you can save time and effort while securing the most suitable equipment loan for your business. Trusting experts like Refer Loan can give you the confidence to make informed decisions and focus on your business’s growth and success.

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