What is Equipment Finance?
While the banking and finance sector has gained considerable visibility over the past decade, particularly with respect to growing the entrepreneurial ecosystem in the country, several niche areas remain relatively unknown to most people. Equipment finance is one such area that is yet to take the spotlight.
Equipment finance refers to the branch of financing that involves extending loans or funding for business owners to help buy new machinery, equipment, tools, and vehicles. These equipment and machinery are vital to the functioning of the business enterprise. For example, a restaurant owner may look for equipment finance to buy hobs, ovens, mixers, and other equipment needed for food prep and processing. Likewise, a factory owner may take a similar loan to purchase machinery that is key to the production process.
Who offers Equipment Finance?
Most popular banks and NBFCs in India are authorised to offer equipment finance. In addition, PSU banks, private banks, and large-scale financial institutions function in the equipment finance space. In time, successful entrepreneurs who own and run businesses can find it easier to prove their repayment ability and secure equipment finance to upgrade their machinery and tools. Start-up owners can also secure these loans but may require some collateral.
From small home-based businesses to large factories and industrial set-ups, equipment finance plays a vital role in the growth and development of most enterprises. This is because better machinery and tools directly impact the quality and quantity of the end products and the scalability of the business.
Role of leadership in Equipment Finance
"How does leadership affect Equipment Finance?" This is a common question. While most banks and NBFCs are known for their operations in home financing and personal and business loans, not much is said or written about equipment finance. The vision of dynamic leaders fuels the country's industrial development through equipment finance. A woman in a small village in Punjab wants to buy tractors and farming equipment to start a small organic herb farm. An enterprising young man in Kerala plans to scale up his grandmother's pickle and jam manufacturing unit with the help of state-of-the-art machines. An industrialist in Madhya Pradesh wants to diversify into eco-friendly steel manufacturing systems and needs heavy machinery to set up the plant. Despite the differences in their fields and scales, each of them is setting up a business that will contribute to national development and grow the economy.
Financial leaders play a role in understanding the value of equipment finance and making it possible for Indian entrepreneurs to have funding in a structured way. Take the example of one of India's leading NBFCs, Bajaj Finserv. The visionary leadership of Sanjiv Bajaj, the Chairman & Managing Director of Bajaj Finserv, helped the company lend to hundreds of thousands of entrepreneurs. As a result, by December 2022, the NBFC had over 66 million customers and recorded a growing number of applicants for equipment finance.
Ushering in the Future
The future of India's economic growth lies in the growth and development of small and medium-scale industries. The sector contributes significantly to the national GDP and is the key to sorting the issue of unemployment in the country. It is also the key to the growth of the banking and financial sector itself, thus bringing dual benefits. With the growth of MSMEs, equipment finance is set to step into the spotlight. With the initiative and encouragement of financial leadership, this aspiration can achieve fruition. It
Role of Fintech in Equipment Finance
Banks and NBFCs must invest in technology and applications that can make equipment finance accessible to people in Tier II & III cities and the rural parts of the country. This is because the potential for start-ups and MSMEs in these parts is immense and remains untapped as yet. Here again, the role of financial leadership in providing equipment finance where needed cannot be emphasised enough. Rakesh Singh, the CEO and Managing Director of Aditya Birla Capital, also emphasises technology's significant role in providing equipment finance to entrepreneurs from small towns and rural parts of the country. Innovation, vision, and technology are the cornerstones of equipment finance development and growth, which can come through leadership initiatives.
Summary
Equipment finance is a niche area in which many banks and NBFCs function. It involves funding and advancing loans to businesses to finance their procurement of equipment, tools, machinery, and vehicles. Equipment finance is the very backbone of the start-up ecosystem and the growth of the micro, small, and medium enterprises sector. Innovative and visionary leadership in the financial industry can efficiently finance the MSMEs and make funds available to businesses requiring equipment finance.
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