India’s manufacturing sector is taking a transformative leap, growing at over 4% from 2023 to 2028. MSMEs contributed 35.4% of the total manufacturing output of 2023-24 and made up 90% of the total machine manufacturers in India. Strong promotions by the Government to Make In India pushing strong growths in manufacturing makes capacity addition profitable for MSME’s. Many of these MSMEs often opt for machinery and ancillary equipment to increase their production capacity, yet they face challenges in securing the funds needed for such essential purchases. This gap makes tailored financial solutions highly valuable.

With the introduction of new safety standards in September 2024, MSMEs now face additional compliance costs along with the necessary updates required in their existing setups. Access to the right financing options thus helps these businesses navigate regulatory demands while staying competitive and driving forward India’s manufacturing growth.

Understanding Machinery Finance:

A machinery loan is a term loan taken to upgrade existing machinery or add additional units to an existing facility. It is considered a secured loan option because the equipment itself acts as collateral. So, until the full repayment, the hypothecation of the machinery remains with the lender. If the lender ever faces trouble repaying the loan, the sale of the asset is an exit route for the customer and the financier. This lowers the risk, allowing MSMEs to enjoy a relatively low interest rate. Moreover a majority of the loan book in categorized as a PSL (Priority Sector Lending) book with additional supports from the government. End use being monitored for purchase of machinery also adds comforts to the financing partners. 

Now the question is: Why should an MSME specifically prioritize machinery finance over other loan options available in the market? And here’s the answer: 

• Sector-Specific Focus 

Machinery finance is focused on sector-specific assets that are standardized yet versatile enough to be leveraged for various operational needs.  

• Comprehensive Coverage 

Machinery finance also covers ancillary equipment, enabling MSMEs to set up or upgrade an entire production line; leading to enhanced productivity and efficiency. 

Collateral Free Loans: 

The Machienry being funded is the primary collateral for the loan. 

Tech enabled quick decisioning : 

Automation of processes and data enabled creditworthiness assessment with the availability of real time data has ensured that the NBFC’s are able to decision and disburse loans quickly.   

• Quick Deployment 

Unlike business or project finance, machinery finance focuses on specific equipment that can be quickly integrated into existing operations. This allows businesses to see immediate value and boost operational capacity without delays.  

• Tax Benefits 

Indian MSMEs can benefit from tax deductions on the interest paid for machinery loans. Plus, an MSME can claim the depreciation on the financed equipment to further reduce its tax liabilities. 

Acquiring Machinery Finance & Fueling Long-term Growth and Competitiveness:

When MSMEs need new machinery, they often approach an Original Equipment Manufacturer (OEM) or supplier. MSMEs usually prefer loan options or repayment plans to avoid tying up their working capital in a large purchase. At this point, they are typically directed to NBFCs and other lenders who can finance the machinery and its ancillary equipment. 

In such cases, MSMEs can directly opt for the OEM’s lending partners to simplify the process. Once the machinery is selected, a lending partner, like Protium, directly transfers payment to the OEM or supplier, ensuring timely delivery to the business unit. 

Partnering with an OEM goes beyond completing a transaction. As MSMEs expand, they will continue to upgrade their equipment, creating sustained demand for financing and reinforcing these relationships. This cycle ensures MSMEs remain competitive with up-to-date technology, driving continuous growth, enhance their product quality and enabling them contribute to the country’s economic growth.  

Use of advanced technology and building sustainable manufacturing platforms backed by AI, robotics, big data etc and the projected economic growth of the country in general is driving the MSME players to invest in newer and efficient Plant and machinery and enhancing capacity to cater to higher volumes and better quality products. This would drive the building of expertise of financing partners to keep supporting the Plant and Machinery finance in the country.