Myth 1 : Traditional Institutions offer many options
Reality: While this might be true for personal and home loans, the machinery loans are few far in between. The paperwork for traditional loans is extensive and tedious. Many small businesses are unable to provide so many details and financial statements. The banking paperwork leaves the entire process to be handled in a very complex manner. All this requires too much financial and professional assistance, impossible for a small business to handle. Also, the banking interest rates are very high for such a small loan. The NBFCs and other new-age financial institutions can provide easy installment loans based on the proprietary KYC details.
Myth 2: Machinery Loans requires high collaterals
Reality: There is no requirement of high collaterals usually up to a certain limit and there are no additional collaterals required apart from that of the machinery being financed. Some companies take no collaterals at all. However, interest rate has to be taken care of in all the cases.
Myth 3: There is a long Approval and Disbursal process in Machinery Loan
Reality: This is untrue as machinery loans are meant for small enterprises so there is a conscious effort to keep the procedure simple and effortless. Modern methods of credit appraisal and quick documentation allow disbursal within 2 days and the SME can start their work immediately.
Myth 4: Lower loan amount is financed through machinery loan
Reality: Many entrepreneurs first feel that machinery loan amounts can have low asset to loan ratio. However, this is not true as many financial institutions give up to 90% of the asset value as a loan.
Myth 5: It is tougher to get a good interest rate
Reality: Machinery loans interest rates are available very easily on most websites of financial institutions. It is easy to get the idea of the minimum lending rate and finally negotiate the rate based on your credit standing, business criteria and other things.
Myth 6 : Pre-payment charges
Reality: Like in a lot of other loans such as personal loans, many people feel there is a pre-payment penalty. However, that is not the case on pre-payment of machinery loans.
Myth 7 : Loan amount has to be huge
Reality: The loan amount can be as low as Rs 2.5 lakhs or even less for small businesses. You have the opportunity to scale up slowly and get financed under various government schemes.
Myth 8 : Machinery Loan is only for New expansion
Reality: This is a very common myth. Small business loans/machinery loans are also given for the expansion, refurbishment, or replacement of the existing machinery. The aim is to help small businesses improve the overall productivity of their business.
Myth 9 : There is no ease of payment
Reality: They provide flexible options for repayment and also can vary interest rates depending upon your payment capacity. The tenure also varies usually from 6 months to 5 years giving ample time to scale up the business and pay-off from the revenues.
Myth 10 : No support
Reality: Many financial institutions get involved with the business per say on the discretion of the owner / borrower and also provide logistical, business and market intelligence. They take it upon as personal businesses consulting to help really small businesses get off the ground so as to enable them to reach their potential and in the process pay-off the loan easily.
Machinery loans are the backbone of most economies. The concept of self-employment and entrepreneurship would not take off without the concept of machinery loan, which acts as a no-frills attached simplistic loan for simple businesses.
