Machines are the heart of a lot of small and medium businesses.. From the printing presses to bakeries and manufacturing units machines play a vital role in driving the production and ensuring efficiency. However buying and maintaining these required machines can be expensive and could be a financial challenge for most MSME business owners. This is where machinery loans step in as an immediate solution, providing businesses with the required capital needed to purchase the machinery they need to improve and scale their business.
There are very evident differences between machinery loans for purchasing new machines and machinery loans for buying used/second hand machines. For a new/growing business buying new machines won’t be the ideal option, hence they rely on used machine acquisition. New machinery loans are comparatively higher in interest rates and come with strict requirements to be even eligible for the loans. Used machinery loans on the other hand are easier for a business owner to be availed from a lender.
Different Types of Machinery Loans
Below listed are the various types of machinery loans available for an MSME owner to choose from:
- Term Loans: As the name suggests term loans are disbursed to MSMEs for a pre defined period and are the most common loan type for machine purchase, offering a fixed interest rate and a set repayment schedule over a defined period.
- Line of Credit: This provides more flexibility, allowing businesses to draw funds only when in need for machine purchase, with interest charged only on the event of utilization of the given line of credit.
- Lease Purchase Agreement: This allows businesses to practically “rent” the equipment with the option to purchase it at the end of the lease term for an amount agreed upon in advance.
10 Reasons to Get a Used Machinery Loan for Your Business
Regardless of what specific sector of business you operate in, the used machinery loans offer a compelling set of advantages for businesses of all sizes, which are not limited to:
- Cost Savings: First reason lies in the significant amount of money that can be saved by only buying second hand machines rather than new machines. Second hand machines can be bought at a fraction of the original price of the new machines, which frees up money which can be invested for other business needs.
- Faster Acquisition: The overall process to buy a new machinery loan involves more bureaucracy when compared to getting a second hand machinery loan. Similarly one doesn’t have to wait for a new machine to be manufactured either as the second hand machine would be readily available. Businesses can take advantage of this situation and leverage it in their favor.
- Proven Performance: High-quality used machinery often comes with a proven track record of reliability and performance. This would give confidence to the machine utilizers as the equipment is proven and tested beforehand by skilled operators. The business could save a lot of time and money due to this advantage.
- Reduced Depreciation: Depreciation of the assets is something that affects new equipments, so buying new machines by self will have an impact on the asset values due to depreciation. This won’t happen in the case of the used machines as their value depreciation would be much lesser against newly purchased machines. From a financial standpoint this adds on to another advantage for used machine loans.
- Improved Cash Flow: The money saved by buying old machines instead of new machines can be used to strengthen the organization by investing in other necessary pillars like inventory management, marketing campaigns, or increasing remuneration for employees, hiring new talents etc.
- Tax Advantages: In some cases, businesses can benefit from tax deductions on the interest paid on used machinery loans. It’s advisable to consult with a tax professional to understand the specific benefits applicable to your situation.
- Environmentally Friendly: Choosing used machinery extends the useful life of existing equipment, reducing the environmental impact associated with manufacturing and disposing of new equipment.
- Specialized Equipment Availability: The used equipment market offers a wider range of specialized machinery that might be out of production or difficult to source as new models. This allows businesses to find specific equipment that perfectly aligns with their operational needs.
- Scalability: Used machinery loans can be a strategic tool for businesses looking to scale their operations gradually. Second hand machine acquisition allows you to test the quality and suitability of the machines for your MSME which also helps in avoiding risk of buying new machines and losing money due to non-suitability of machines for your business. For a business every cent saved is equivalent to a cent earned.
- The NBFC Advantage: Non-Banking Financial Companies usually referred as NBFCs are becoming very relevant players in the MSME Loan market. They now offer more flexible loan repayment and Unsecured Business Loan options compared to traditional lending institutions like national and private banks in India, with faster processing times and comfortable repayment options in the case of used machinery loans. The market share of NBFCs are increasing Month over Month and Year over Year which is good news for MSME business owners in India.
Conclusion
Used machinery loans is a cost effective option for MSMEs who are looking ahead to go to the next level without taking an unbearable financial trouble. From significant cost savings to improved cash flow and environmental benefits, the advantages are undeniable. When exploring financing options, NBFCs emerge as an ideal choice for used machinery loans. Their focus on flexibility and potentially lower interest rates can significantly ease the financial burden on businesses, allowing them to invest in used machinery strategically and propel their operations towards sustainable growth.
