Machine tool financing
August 25, 2015 2:57 pm
Right financing solutions play a critical role for machine tool buyers to get an added advantage in today’s competitive market
Machine tool industry is cruising through a challenging phase and finance remains the key problematic component for the machine tool buyers. It has been observed that potential machine tool buyers are experiencing increased difficulty arranging loans to fund equipment acquisition.
Commenting on the availability of finance for Indian machine tool buyers, Vikas Taneja, Vice President – Marketing, Jyoti CNC Automation Ltd. says, “Looking at the present market situation, it is somewhat difficult for machine tool buyers for arranging finance. As machine tool is capital goods business, finances required are sometimes very high. Therefore, finance availability is a challenge for machine tool buyers in India.” Jyoti CNC is a major CNC machine tool manufacturer in India.
Sanjeev Goel, Managing Director at Intec Capital Limited observes, “Financing has always been the biggest challenge for the SMEs in India. Lack of availability of timely and adequate funds, extensive documentation, non- availability of finance to first generation entrepreneurs, and difficulty in credit assessment has been continuously adding to their woes.” Intec Capital Limited is one of the leading non-banking financial institutions in India commenced its operations in 1994.
Mr Goel adds, “Inherent problems of small enterprises such as lack of transparency and nonadherence to accounting norms, act as deterrents for institutions in financing them. The perception of high risk associated with lending to SMEs has forced financial institutions to embark upon a collateralised lending policy, and this acts as another major hurdle in accessing of funds. Though the flow of credit to SMEs has recently increased, the gap between demand and supply still remains wide. Even for machine tool buyer, the challenge remains the same as mentioned.”V.A. Mohankumar, Assistant General Manager, Bank Of India, Chennai points out availability of finance is a challenge, “If a buyer is not having a clear proposal of as to how the debt will be serviced and paid back in reasonable time frame.”
However, Mr Mohankumar feels there will be no challenge in finance if the buyer is having a clear roadmap of how the finance would be utilised and how the proposed machinery would be put in to maximum use and increase the productivity.
Ankur Agarwal, Marketing Manager at DMG MORI shares his optimism on finance availability saying, “Today, finance is readily available to the machine tool buyers. The outlook looks very positive and with ‘Make in India’ wave. The manufacturing industry is all set to grow rapidly in the coming years. The finance industry doesn’t want to miss this opportunity. There are numerous private sector players and public sector players who are ready to finance the buyers. Various government schemes for SMEs are also helping in this regard.”
Finance optionsToday there are many finance options available to fund equipment acquisition. These include a loan, capital lease, finance lease, operating lease, off-balance sheet lease, tax lease, non-tax lease, promissory note or security agreement, skip payments, step-up or step-down payments etc.
“One can approach nationalised banks, private banks, cooperatives or NBFCs to avail loans for equipment acquisition. The government has also undertaken various measures to support SME access to finance,” Mr Goel suggests. “SMEs can reach out to NABARD and SIDBI for availing schemes like Credit Guarantee Trust for micro and small enterprises and Credit-linked Capital Subsidy Scheme.” Companies like Intec Capital are focussed into financing of machinery and equipment to be bought by small and medium enterprises.
“Rate of interest might differ between various options. However, ease of financing, paper work and time involved also play a major role in selecting the right financer,” Mr Agarwal views.
Helping handsMachine tool players as well as the finance institutions have different strategies to deal with potential machine tool buyers who are in need of finance. Explaining the strategies at Intec Capital, Mr Goel says, “We have been very consultative in approach while dealing with potential machine tool buyers looking for financial assistance. We analyse the current financial position of perspective customers and help them in identifying the right mix of capital for meeting various business expenditures. We also help them in compilation of all the necessary documents required for availing any of the loans. As we are one of the few NBFCs who finance both new as well as used machines, we help customers evaluate both the options and make the best decision.”
Intec also provides a dedicated relationship manager for all prospective buyers who assist them in identification of machines to financing of the machines. “Post disbursements of loan, our in-house customer support centre works meticulously to make the association a delightful experience,” Mr Goel assures.
“We have linked ourselves with private as well as government undertaking financial institutions who help and guide potential machine tool buyers for financing,” Mr Taneja adds. “Also through special recommendation, the processing of the finance can be expedited.”
However, for Mr Mohankumar of BOI, it all depends on whether the potential tool buyer is already in manufacturing and doing business or a new entrant in the manufacturing field. If a buyer is already in manufacturing, then the bank needs to analyse the balance sheet to know the financial strength of the firm or company. The business model and cash flow to be understood clearly so that repayments may be matched to the cash flows. The technical details of the machineries to be purchased, its economic usefulness to the project (TEV) and the credentials of the machineries suppliers are to be looked into. If a buyer is new to manufacturing, the following additional points are needed attention in addition to the above criteria:• Due diligence and KYC• Prior experience of the buyer in the field, the knowledge of the manufacturing process, marketing etc.• Availability of adequate capital.
According to Mr Agarwal, “Most of the times, buyers are not well informed about the availability of finance options. When we receive an enquiry from a potential buyer, we usually enquire about the need of finance. If needed, we fix up the meeting between the buyer and financer directly. The financer will do a thorough background check of the buyer before approving the loan.”
Finance solutionsIntec Capital is a focused NBFC working exclusively in India’s SME space, resulting in a distinctive core competence. “We understand the importance of timely funding and that any delay may lead to missed business opportunities. Thus, we grant in-principle approval of credit within 72 hours – the fastest and the most hassle-free credit appraisal turnaround process guaranteed by any financing company,” Mr Goel claims.
He adds, “Since we understand the limitations and requirements of SME Customers, we do not go for the evaluation of the balance sheet in a traditional way. We look beyond the factors which are not reflected in the balance sheets of SMEs. We appraise his experience in a particular business, relevant educational background, residence stability, past and present cash flows, repayment track records and investment in business.”
Intec Capital provides door step services to its customers and also helps them in the documentation process. The company also has special products for women and can structure the finance according to the need of the customers.
SMEs are typically characterised by a lack of collateral. In case of debt financing, banks request collateral to mitigate the associated risks. The lack of collateral is probably the most widely cited obstacle encountered by SMEs in accessing finance. “In our endeavour to serve the SMEs, we strategised loans without taking real estate as collateral. We only hypothecate the machineries against which the loans are disbursed,” informs Mr Goel. Intec Capital also offers special finance options for the first generation entrepreneurs who are very critical to the development of the SME sector.
Intec Capital is primarily focusing on sectors such as automobile and engineering, printing and packaging, plastic and injection moulding. The company is also looking at fulfilling machinery or equipment finance requirements of pharmaceutical, medical, healthcare, and food processing sectors this year.
Bank Of India offers lease model and outright purchase model finance options. Though DMG MORI doesn’t provide finance directly, it helps in getting finance through the right partner.
Jyoti CNC provides financial solutions to its customers as it has linked itself with private as well government undertaking financial institutes. “Our customers get benefits such as discounted interest rates, easy and swift documentation,” Mr Taneja asserts.__________________________________Inherent problems of small enterprises such as lack of transparency and nonadherence to accounting norms, act as deterrents for institutions in financing them.
Sanjeev Goel, Managing Director, Intec Capital Limited.___________________________________________If a buyer is already in manufacturing, then the bank needs to analyse the balance sheet to know the financial strength of the firm or company.
V.A. Mohankumar, AGM, Bank Of India, Chennai_____________________________We have linked ourselves with private as well as government undertaking financial institutions who help and guide potential machine tool buyers for financing.
Vikas Taneja, Vice President – Marketing, Jyoti CNC Automation Ltd._______________________________________