In today’s ever-changing business environment, staying rigid and failing to adapt to changing demands can lead your business to stay caught up. Having the right equipment is compulsory for running a successful business. You need to adjust your business to the new equipment to remain in the trend. However, this can cost you a significant amount of money, and with the rising cost of used equipment and machinery, it can be difficult to obtain. All of these concerns can be addressed with a personal loan. 

For convenience and flexibility, many business owners are now turning to personal loans as a quick financial solution for various business purposes, including the purchase of new equipment and machinery. Unlike business loans, personal loans are easier to obtain and have more flexible terms, making them an appealing option for business owners who require immediate funding, which is especially useful in time-sensitive situations. In this article, we will look at how to use personal loans for business equipment and machinery and how to get the most out of them. 

Benefits of Using Personal Loans for Business Equipment and Machinery

For small business owners, accessing traditional business loans can be a little challenging. Many small business owners struggle to obtain the financing they require due to insufficient collateral, a complex and lengthy application process, or lengthy approval times. Here, personal loans step in as a faster and more accessible alternative. 

One of the main advantages of the personal loan is that it can be obtained without any collateral, making it very easy for small business owners who do not have significant assets to pledge or do not want to risk their assets. Because of this, personal loans are especially helpful for businesses looking to maintain their competitiveness in the market. Let us go over all of the benefits of obtaining personal loans for business equipment and machinery in detail. 

Fast Disbursement: 

When faced with an emergency, waiting for a lengthy application and approval process for business loans is not an option. Personal loans are often approved and disbursed much faster than the traditional business loans. This makes things much easier for small business owners who need quick financial solutions. 

No Collateral Required: 

The fact that personal loans are unsecured, or do not require collateral, is one of their most alluring features. This is especially useful for small business owners who do not have valuable assets, such as property or equipment, to pledge as security. Without the need for collateral, personal loans offer a lower-risk financing option that can still provide substantial funds for purchasing business equipment.

Flexibility in Loan Usage: 

Another amazing benefit of personal loans is their flexibility. Unlike business loans that may have restrictions on the end use of the funds, personal loans allow business owners to allocate the funds as they see fit. Personal loans give you the freedom to invest in any equipment your company needs, including office supplies, heavy machinery, and even cutting-edge technology.

Easier Eligibility Criteria: 

Compared to business loans, personal loans usually have simpler eligibility criteria. Lenders typically focus on the borrower’s income, credit score, and financial stability. This makes personal loans more accessible to small business owners and self-employed individuals who may not meet the strict requirements of a business loan. 

Let us take a look at the eligibility criteria for the personal loan that most lenders require: 

• The minimum age of the applicant should be at least 21 years. 
• The business stability should be at least 1 year. 
• The applicant should have 1 year of Income Tax Returns. 
• The minimum credit score requirement varies by lender, but a credit score of 650 or higher is considered good, making loan approval easier. 

How to Use a Personal Loan to Purchase Business Equipment and Machinery Effectively 

Let us take a step-by-step look at how you can use a personal loan to effectively purchase business equipment and machinery. 

Assess Your Equipment Needs

Before applying for a loan, it’s very important to identify what equipment your business needs. Think about the kind of equipment or technology that will upgrade your company’s worth and boost productivity. You can avoid spending too much money on unnecessary items by focusing on what will have the greatest impact.

Calculate the Total Cost 

Once you have determined what equipment you will require, calculate the total cost, which includes taxes, installation fees, and maintenance costs. This will help you understand how much money you need to borrow and ensure that you are applying for the correct loan amount.

Plan for Repaying the Loan 

Establishing a repayment schedule that fits the cash flow of your company is essential. Plan your repayment strategy so that it does not disrupt or burden your company’s cash flow. Make a solid repayment plan to ensure on-time payments, avoid penalties, and protect your credit score. Be prepared with a backup plan in case the main one does not work.  

Apply for a Personal Loan 

The next step is to submit a personal loan application. Research various lenders, compare interest rates, and gather the necessary documents. 

The list of required documents is as follows: 

• Aadhaar Card 
• PAN Card 
• Bank Statement 
• Address Proof 
• Balance Sheet 
• Income Tax Returns 
• Profit & Loss statement 
• Income Computation
• Service Tax Registration, License, Registration Certificate

Please note that a lender can ask for additional documents based on your profile and their guidelines. 

Now, submit your application to the lender whose eligibility criteria, interest rate, and other terms and conditions are suitable for you and your profile, and wait for approval. 

Tax Benefits of Using Personal Loans for Business Equipment

Personal loans generally do not provide any direct tax benefits. However, if you use the funds obtained through personal loans for business-related expenses, you can be eligible for tax benefits under the Income Tax Act of India. Let us look at how you can take advantage of tax benefits. 

Interest Paid as a Business Expense

Under Section 36 of the Income Tax Act, the interest paid on loans used for business purposes can be claimed as a business expense. This also applies to personal loans, as long as the funds are used to purchase equipment or machinery required for business operations. By claiming the interest as a deductible expense, you can reduce your taxable business income, which can ultimately lower your tax liability.

Depreciation for Purchased Equipment

The gradual decline in an asset’s value over time is known as depreciation, and businesses are permitted by the government to deduct this amount from their taxable income. Therefore, you can take advantage of depreciation on the machinery or equipment you have purchased in addition to claiming the interest paid on the loan. Business equipment and machinery, such as computers, heavy machinery, or delivery vehicles, are considered depreciable assets. The provisions of the Income Tax Act allow you to claim depreciation when you finance these assets with a personal loan. Here’s a list of depreciable assets and their rates of depreciation: 

This deduction reduces your overall tax liability by taking into account the wear and tear of your assets.

Input Tax Credit Under GST

The Goods and Services Tax (GST) input credit is another tax benefit available to small business owners who use personal loans to purchase business equipment. If you are a GST-registered business and purchase equipment or machinery that falls under the taxable category, you can claim an input credit on the GST paid for the purchase.

Common Mistakes to Avoid When Using Personal

Loans for Business Equipment

Taking out a personal loan to finance business equipment and machinery can be an excellent way to support business growth. However, if not managed wisely, personal loans can lead to financial challenges. Here are some common mistakes to avoid when using personal loans for business equipment to ensure that the loan benefits you.

Overborrowing

One of the biggest mistakes small business owners make is borrowing more than they need. While it may be tempting to request a larger loan amount to have more money on hand, overborrowing increases your financial burden. This can strain your cash flow and limit future borrowing capacity. 

To avoid this, carefully assess your business’s equipment needs and calculate the exact amount required. Consider the equipment cost, installation fees, and any maintenance expenses, but avoid padding the loan amount unnecessarily. Stick to what is essential for your business operations, and resist the temptation to borrow more than you can comfortably repay.

Ignoring Fine Prints 

Another common mistake that small business owners make when applying for a loan is failing to read the terms and conditions carefully. The fine print contains all of the necessary information, such as the interest rate, repayment terms, late fees, processing fees, cheque bounce charges, preclosure terms, preclosure penalties, and so on, which if ignored can have a significant impact on your repayments.

Not Planning For Repayment

Failure to plan for repayments can result in missed payments, lowering your credit score and triggering penalties. Make sure you have a structured repayment plan that aligns with your cash flow. Setting up automatic payments will help you avoid missing EMIs.

Conclusion 

Personal loans can be an excellent option for small business owners to finance the purchase of essential equipment and machinery. The quick approval, lack of collateral requirement, and flexibility make personal loans attractive options for business owners who need fast and hassle-free funding. However, approaching personal loans strategically is essential. By comparing interest rates, loan tenures, and fees, you can find the best loan terms that fit your business’s financial situation. Proper planning and timely repayment are key to ensuring that personal loans work as a growth tool for your business. 

With the right approach, personal loans can be an excellent way to invest in the equipment and machinery your business needs to thrive. At Kreditbazar, we understand the unique financial challenges that small business owners may face in their business operations. Our team of financial experts is dedicated to helping you find the right personal loan options for your business. Whether you’re upgrading machinery or expanding your operations, Kreditbazar offers tailored financial solutions through top-notch financial consultation and services. Access our partnered NBFCs and process your loan with them – all through a seamless online portal. 

Frequently Asked Questions on Loan for Business Equipment and Machinery

Q1. Can a personal loan be used for business?
Ans1. Yes, a personal loan can be used for business purposes, such as expanding operations or purchasing equipment. It’s a flexible financing option for small business owners. Kreditbazar partners with multiple NBFCs to make personal loans accessible and easy for business needs.

Q2. Can a loan be used to buy equipment?
Ans2. Yes, you can use a loan to buy equipment. Personal loans are often used by small businesses to purchase essential machinery or technology. Kreditbazar offers loans through top NBFCs, making equipment financing straightforward and quick.

Q3. Can we take a loan on machinery?
Ans3. Yes, you can take a loan specifically for machinery purchases. This is common in industries like manufacturing. With Kreditbazar, you can easily apply for personal loans that cover machinery purchases, with competitive interest rates from leading NBFCs.

Q4. Can you get a loan for equipment?
Ans4. Yes, personal loans can be used to finance the purchase of equipment for your business. Kreditbazar, through its NBFC partners, provides easy loan options for equipment financing.

Q5. What is the average interest rate for an equipment loan?
Ans5. The average interest rate for an equipment loan can range between 8% to 15%, depending on the lender and borrower’s credit profile. Kreditbazar helps you find the most competitive rates through its network of lending partners.

Q6. What is an example of an equipment loan?
Ans6. An example of an equipment loan is a business owner taking a loan to purchase heavy machinery, such as manufacturing equipment, with repayment terms ranging from 2 to 5 years. Kreditbazar can connect you with the best NBFCs offering equipment loans.

Q7. What is the interest rate for a machinery loan?
Ans7. The interest rate for a machinery loan generally falls between 9% and 14%, depending on the lender and borrower’s profile. Kreditbazar partners with NBFCs that provide affordable machinery loans to small businesses.

Q8. What is the interest rate for an MSME machinery loan?
Ans8. MSME machinery loans often have interest rates between 8% and 12%. Kreditbazar can help you find the best MSME loan options by partnering with top NBFCs that specialize in such loans.

Q9. Can equipment be used as collateral for a loan?
Ans9. Yes, equipment can be used as collateral for secured loans, which might reduce interest rates. However, most personal loans from Kreditbazar are unsecured, providing flexibility without the need for collateral.

Q10. What are the qualifications for an equipment loan?
Ans10. Qualifications for an equipment loan include a good credit score (usually 650+), stable income, and sometimes, collateral. Kreditbazar partners with NBFCs offering equipment loans with minimal eligibility requirements.

Q11. Can we get a loan for personal use?
Ans11. Yes, personal loans can be taken for personal use such as home renovations, travel, or emergencies. Kreditbazar offers easy access to personal loans for various needs through its lending partners.

Q12. What credit score is needed for equipment?
Ans12. Generally, a credit score of 650 or higher is needed to secure equipment financing at competitive rates. Kreditbazar helps you find the best loan options based on your credit profile.

Q13. Which loan is cheaper as per interest rate?
Ans13. Secured loans, such as those backed by collateral, usually have lower interest rates compared to unsecured loans. Kreditbazar partners with NBFCs offering competitive rates on both secured and unsecured loans.

Q14. What is the monthly loan rate?
Ans14. The monthly loan rate depends on the interest rate, loan amount, and tenure. You can calculate the exact EMI using Kreditbazar’s loan calculators available on their website.

Q15. What is the effective interest rate in personal loans?
Ans15. The effective interest rate includes the base interest rate along with any fees or processing charges. Typically, it ranges from 10% to 18% depending on the lender. Kreditbazar ensures transparent terms with its NBFC partners.

Q16. Which bank is best for MSME loan?
Ans16. Banks like SBI, HDFC, and ICICI are popular choices for MSME loans. However, Kreditbazar partners with multiple NBFCs that offer competitive MSME loans with faster approval processes.

Q17. What is the minimum CIBIL score for an MSME loan?
Ans17. A CIBIL score of 650 or higher is generally required for MSME loans. Kreditbazar’s NBFC partners may offer flexibility depending on your overall financial profile.

Q18. Who is eligible for an MSME loan?
Ans18. Small business owners with a registered MSME, a good credit score, and stable financial records are eligible for an MSME loan. Kreditbazar can help you find the right loan based on your eligibility.

Q19. What is the rate of interest for a personal loan?
Ans19. Personal loan interest rates generally range from 10% to 18%, depending on the lender and the borrower’s credit profile. Kreditbazar provides access to loans with competitive rates from top NBFCs.

Q20. What is the maximum tenure for a machinery loan?
Ans20. The maximum tenure for a machinery loan typically ranges from 5 to 7 years. Kreditbazar can help you find the best loan terms through its lending partners.

Q21. What is the current loan rate?
Ans21. The current loan rate for personal loans ranges between 10% and 18%, depending on the lender and the borrower’s credit profile. Kreditbazar helps you compare rates from multiple NBFCs.

Q22. What is the basic criteria for a personal loan?
Ans22. The basic criteria for a personal loan include a minimum income of ₹25,000, a credit score of 650+, and stable employment. Kreditbazar simplifies the application process by offering personal loans from reputed NBFCs.

Q23. How does a machinery loan work?
Ans23. A machinery loan provides funds specifically for purchasing equipment. You repay the loan in installments over a set period. Kreditbazar connects you with NBFCs offering flexible repayment options for machinery loans.

Q24. How long is the equipment loan for?
Ans24. Equipment loans typically have a tenure of 3 to 7 years. Kreditbazar partners with NBFCs offering various loan tenures to meet business needs.

Q25. Which Bank is best for a personal loan?
Ans25. Banks like HDFC, ICICI, and Axis offer competitive personal loan rates. However, Kreditbazar partners with NBFCs that often have faster processing and more flexible terms.

Q26. What is the maximum personal loan amount?
Ans26. The maximum personal loan amount can vary from ₹1 lakh to ₹40 lakhs, depending on the lender and borrower’s profile. Kreditbazar offers access to NBFCs providing loans up to ₹40 lakhs.

Q27. Which Bank gives a personal loan for 7 years?
Ans27. Banks like HDFC and ICICI offer personal loans with tenures of up to 7 years. Kreditbazar can help you find the best lenders offering flexible loan tenures.

Q28. Does tally do a hard credit check?
Ans28. No, Tally does not typically perform hard credit checks; however, lenders may check your credit score when you apply for a loan through the platform.

Q29. Will companies check credit score?
Ans29. Yes, lenders and companies check your credit score to assess your creditworthiness before approving loans. Kreditbazar ensures a smooth process by partnering with NBFCs that offer quick approvals based on credit checks.

Q30. What is the minimum score for credit?
Ans30. A minimum credit score of 650 is generally required for personal loans. Kreditbazar partners with NBFCs that may offer flexible terms based on your credit profile.

Q31. Can we get a loan on old machinery?
Ans31. Yes, some lenders offer loans on old machinery, depending on its condition and resale value. Kreditbazar can help you explore options through NBFCs that offer such loans.

Q32. What is eligibility for a loan?
Ans32. Loan eligibility typically depends on your income, credit score, employment stability, and financial history. Kreditbazar simplifies the process by offering loans through its NBFC partners with easy eligibility criteria.

Q33. Who needs equipment financing?
Ans33. Small businesses, startups, and industries in manufacturing, construction, and retail often need equipment financing. Kreditbazar partners with NBFCs offering equipment loans tailored to various business needs.