1. Application seeking financing

The entrepreneur seeking financing for purchase of equipment would need to make an application to the financing institution about his requirements. Along with such application, submission of the following documents are generally sought:

• Balance sheets for the last few years years and future projections
• Details of existing borrowings with repayment schedule

• Details of proposed equipments along with quotations and pro-forma invoices
• Justification for the proposed equipments and likely benefits of such acquisition

• The proposal is analysed with the focus on suitability of the equipment for financing, performance of the unit, the advantages the proposed equipment will provide in its operations and the readiness of the promoter to provide additional security in the form of collateral (required in most cases).
• In the event of the proposal being acceptable on the above aspects, it is accepted for detailed appraisal on payment of the processing fee

On receipt of the processing fee, the proposal is taken up for detailed appraisal. In case of equipment financing, given the routine nature of the equipment, financial analysis is limited to a quick appraisal of:
• Performance of the unit and credit record with other institutions;
• Justification for the proposed equipment and overall viability of the scheme.

The main effort taken here is in case of Verification and valuation of Collateral security, where the documents pertaining to the security offered as collateral is scrutinized in detail. This includes:
 
• Sale deed/Conveyance deed of the proposed collateral security;
• Search report from an Advocate indicating a clear title for the last fifteen years as per the land records; and
• Valuation report from an approved valuer;
• Approved building plans in case of constructed property.

In the event of satisfactory completion of the scrutiny regarding the security, and financial analysis of the operations of the unit, sanction is accorded to the project.

The process of disbursement of Equipment Financing loan starts with the acceptance of terms & conditions of sanction by the borrower ¹ as conveyed in the Sanction Letter and receipt of the Up-front fee.

In addition to these, the following steps are also undertaken prior to initiating the disbursement of the loan amount.
 

• Documents conveying equitable Mortgage (or hypothecation in case of vehicles) on the primary security i.e. the equipment being financed and on the additional security (collateral).
• Loan agreement conveying the terms and conditions of the loan
• Personal Guarantee of the borrower and guarantor (if any).

Back to Financing from NBFCs

Introduction to Equipment Financing
Equipment Financing in India
Characteristics of Equipment Financing

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