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Features of Union Equipment Finance (Machinery Loan)

  • Purpose: Financing the purchase of new industrial vehicles, machinery, and equipment for business operations. Supports business expansion and modernization by enabling the acquisition of top-notch equipment.
  • Loan Type: Offered as a term loan for purchasing machinery and equipment. Can also be availed for other business-related needs like working capital under specific schemes.
  • Collateral: No collateral security is required for availing finance under this scheme. The bank places a hypothecation charge on the equipment purchased with the loan, meaning the machinery itself serves as security until the loan is fully repaid.
  • Interest Rates: Competitive interest rates linked to the Marginal Cost of Funds-based Lending Rate (MCLR) or External Benchmark Lending Rate (EBLR), depending on the scheme. Rates are determined based on the applicant’s credit rating and loan amount, typically ranging from 9.50% to 14.80% p.a. (subject to change). Lower interest rates are offered compared to industry standards, making it cost-effective.
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    • Margin: Requires a margin (borrower’s contribution) starting from 20% of the cost of assets, depending on the scheme and loan amount. For specific schemes, the margin may vary based on the net realizable value of the financed equipment or property.
    • Loan Amount: Minimum: ₹10 lakh. Maximum: Up to ₹5 crore for equipment financing, with higher limits (e.g., up to ₹10 crore) available for eligible borrowers under specific conditions. The loan amount covers the cost of machinery, equipment, and related expenses (e.g., accessories, taxes, or registration charges for vehicles).
    • Repayment Tenure: Flexible repayment periods, with a maximum tenure of up to 7 years for term loans. Repayment schedules are tailored to suit the borrower’s cash flow and business needs.
    • Processing Fees: Minimal fees and charges are levied, with processing fees varying based on the loan amount. For loans between ₹2 lakh and ₹5 crore, a processing fee of 1.30% of the loan amount (subject to a minimum amount) is charged.
    • Eligibility: Open to MSME and non-MSME units engaged in manufacturing, services, trading, or contracting, regardless of the line of activity. Borrowers must have a minimum business vintage of 2 years and be profit-making. Accounts should not be classified as Special Mention Account (SMA) or SMA-2 in the last 12 months. For new-to-bank MSMEs, a maximum limit of ₹10 crore is available if they meet specific criteria (e.g., in operation for 2+ years). Non-MSME contractors require an external credit rating of BBB or above.
    • Tax Benefits: Interest payments on the machinery loan are eligible for tax deductions, reducing the total taxable income for the financial year. However, the principal repayment does not qualify for tax benefits.
    • Application Process: Available through both online and offline modes. Online applications can be submitted via the Union Bank of India website, followed by document submission and verification. Offline applications involve visiting a branch to fill out the loan form and provide required documents.
    • Benefits: Collateral-free financing reduces the burden of pledging additional assets. Competitive rates and low margin requirements make it accessible for businesses. Enables businesses to upgrade equipment, improve productivity, reduce defects, and meet timely production schedules. Supports business growth by providing funds for high-quality machinery, enhancing product quality and market competitiveness.
    • Documents Required: KYC documents: PAN Card, Aadhaar Card, Voter ID, Passport, or Driving License. Business proof: GST registration, Udyam registration, or other business continuity documents. Financial documents: Income tax returns, audited balance sheets, profit and loss statements, and bank statements for the last 2 years. Additional documents may be required based on the loan scheme and borrower profile.
    • Special Schemes: The machinery loan can also be availed under schemes like Union MSME Suvidha, Union Progress, or Union Nari Shakti (for women entrepreneurs) for purchasing plant and machinery. The Union Mudra STP scheme allows machinery purchases for micro-enterprises without collateral, with competitive rates and simplified processes.
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Benefits of Union Bank of India Machinery Loans

  • Access to High Loan Amounts for Equipment Purchases: Union Equipment Finance provides loans ranging from ₹10 lakh to ₹50 crore, enabling businesses to finance a wide variety of machinery, from industrial vehicles to advanced manufacturing equipment. This high quantum supports both small-scale upgrades and large-scale expansions. The loan can cover up to 85% of the equipment cost in some cases (e.g., farm mechanization schemes), reducing the upfront financial burden on businesses.
  • Collateral-Free Financing: No collateral security is required for loans under the Union Equipment Finance scheme. Instead, the bank places a hypothecation charge on the equipment purchased, making it easier for businesses without additional assets to secure funding. This is particularly beneficial for startups or small businesses with limited assets, as it lowers the entry barrier to financing.
  • Competitive Interest Rates: Union Bank of India offers competitive interest rates linked to the Marginal Cost of Funds-based Lending Rate (MCLR) or External Benchmark Lending Rate (EBLR), depending on the scheme.
    • Flexible Repayment Tenure: Loan tenures can extend up to 15 years for certain MSME schemes, allowing businesses to spread repayments over a longer period and manage cash flow effectively.
    • Quick Processing and Digital Application: The bank provides a seamless digital application process, enabling entrepreneurs to apply online, submit documents, and track applications with minimal paperwork.
    • Support for Business Growth and Productivity: Financing enables businesses to acquire cutting-edge machinery, improving productivity, reducing turnaround times, and enhancing product quality.
    • Tax Benefits: The interest paid on machinery loans is eligible for tax deductions, reducing the taxable income of the business and lowering the overall tax liability.
    • Support for Diverse Business Needs: Loans can be used for purchasing new equipment, upgrading existing machinery, or even acquiring second-hand equipment (e.g., under farm mechanization schemes).
    • Encouragement for Women Entrepreneurs and Startups: Union Bank offers specialized schemes like Union Nari Shakti for women entrepreneurs, which may include machinery loans with attractive terms to promote Financial.
    • Government-Backed Schemes: Machinery loans under programs like the Pradhan Mantri Mudra Yojana (PMMY) or Stand-Up India are supported by government guarantees, reducing risk for both the bank and borrower.
    • No Prepayment Penalties for Certain Loans: While prepayment penalties may apply to some term loans, specific MSME loans up to ₹5 lakh have no processing charges making early repayment more attractive.
    • Minimal Documentation and Eligibility Criteria: The application process requires basic KYC documents (PAN, Aadhaar, etc.), business proofs, and machinery quotations, making it accessible even for new businesses.
    • Sustainability and Cost Savings: By financing modern, efficient machinery, businesses can reduce operational costs and contribute to sustainability goals, aligning with schemes like Union Solar for green energy adoption.
    • Customized Financial Support: Union Bank tailors its machinery loans to meet specific business needs, whether for working capital, equipment purchase, or expansion.
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How to Apply for Union Bank Machinery Loans

  • 1. Check Eligibility
    • Business Type: Ensure your business qualifies (MSME, non-MSME, contractor, etc.).
      Requirements typically include:
      - At least 2 years of business operation.
      - Profit-making status for the last 2 years.
      - No Special Mention Account (SMA-2) status in the last 12 months.
    • Credit Rating: For non-MSMEs, a minimum BBB credit rating may be required. New MSMEs may access up to ₹10 crore without an external rating.
    • Specific Schemes: Check eligibility for schemes such as Union Mudra, Union Nari Shakti, or Stand-Up India.
  • 2. Gather Required Documents
    • KYC Documents: PAN and Aadhaar cards, passport-sized photographs.
    • Business Proof: GST registration, Shop Act License, or Udyam Registration.
    • Entity Documents: Partnership deed, MoA, or AoA as applicable.
    • Financials: Last 2 years’ audited balance sheets, ITRs, and bank statements.
    • Loan-Specific: Machinery quotation, proforma invoice, and business/project report (if applicable).
    • Others: For second-hand machinery, provide valuation reports or certificates.
  • 3. Choose Application Method
    • Online: Visit Union Bank’s official website and navigate to the appropriate loan scheme.
    • Branch Visit: Submit documents and fill out application form at the nearest branch.
    • Digital Portals: For schemes like Mudra, apply through Udyamimitra or MUDRA portal.
  • 4. Submit Application and Track Progress
    • Bank reviews your documents and assesses your creditworthiness.
    • You may be contacted for additional clarification or documents.
    • Track application status online or by visiting the branch.
  • 5. Loan Sanction and Disbursement
    • Upon approval, receive sanction letter outlining terms and conditions.
    • Complete formalities like equipment hypothecation.
    • Loan is disbursed to the equipment supplier or business account.

Eligibility Criteria for Union Bank Machinery Loans

  • 1. Business Type:
    • MSMEs (must have Udyam Registration).
    • Non-MSMEs like contractors, partnerships, companies in manufacturing, services, etc.
  • 2. Business Vintage:
    • Minimum 2 years of profitable business operations.
    • Startups can explore schemes like Union Mudra or Start-Up India.
  • 3. Financial Stability:
    • Profit-making business with no SMA-2 status in the last 12 months.
    • Audited financials and ITRs required.
  • 4. Credit Rating (for Non-MSMEs):
    • Minimum BBB credit rating required.
    • New MSMEs can get loans without rating up to ₹10 crore.
  • 5. Loan Purpose:
    • Purchase or upgrade of new/used machinery for business use.
    • Includes industrial, construction, and agricultural equipment.
    • Applicable for modernizing production facilities or expanding capacity.
  • 6. Scheme-Specific Eligibility:
    • Union Equipment Finance: ₹10 lakh to ₹50 crore; no collateral required.
    • Union Mudra: For micro-enterprises; easy documentation; no collateral.
    • Union Nari Shakti: For women-led enterprises with relaxed norms.
    • Stand-Up India: For SC/ST/women for greenfield projects (₹10 lakh – ₹1 crore).
    • Union MSME Suvidha: For MSMEs with 2+ years of good track record.
    • Union Start-Up Support: Tailored financing for startups with innovative machinery needs.
  • 7. Location and Sector Consideration:
    • Loan availability may vary based on industrial sector and geographical area.
    • Priority may be given to sectors aligned with government focus (e.g., renewable energy, food processing).
  • 8. Collateral and Guarantee:
    • Most schemes for MSMEs are collateral-free under CGTMSE.
    • Personal guarantees may be needed in some cases.
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Documents Required for Union Bank Machinery Loans

  • 1. KYC Documents (for Proprietor/Partners/Directors):
    - PAN Card (individual and business, if applicable)
    - Aadhaar Card or other government-issued ID (e.g., Voter ID, Passport, Driving License)
    - Passport-sized photographs (2–4, as specified by the branch)
    - Address proof (e.g., utility bill, rent agreement, or Aadhaar)
  • 2. Business Proof:
    - Udyam Registration Certificate (mandatory for MSMEs)
    - GST Registration Certificate (if applicable)
    - Shop Act License or Trade License
    - Partnership Deed (for partnership firms)
    - Memorandum of Association (MoA) and Articles of Association (AoA) for companies
    - Certificate of Incorporation (for private/public limited companies)
    - Business registration proof for proprietorships (e.g., GST or municipal license)
  • 3. Financial Documents:
    - Audited Balance Sheet and Profit & Loss Statement for the last 2 years
    - Income Tax Returns (ITR) for the last 2 years (business and individual, if applicable)
    - Bank Statements for the last 6–12 months (primary business account)
    - Provisional financials for the current year (if applicable for larger loans)
    - Cash Flow Statement or Projected Financials (for loans above a certain threshold)
  • 4. Loan-Specific Documents:
    - Quotation or Proforma Invoice for the machinery/equipment to be purchased
    - Purpose Statement: Brief note on how the machinery will be used to enhance business operations
    - Project Report or Business Plan (for larger loans or specific schemes)
    - For second-hand equipment: Valuation report and ownership transfer documents
  • 5. Additional Documents (Scheme-Specific):
    - Union Mudra: Simplified docs for Shishu; full financials for Kishore and Tarun
    - Union Nari Shakti: Proof of women ownership (50%+)
    - Stand-Up India: Caste certificate (for SC/ST), women ownership proof
    - Union Equipment Finance: Credit rating report, existing loan details

Factors Related to Machinery for Union Bank Loans

  • 1. Type and Purpose of Machinery:
    - Must be for productive use in manufacturing, construction, agriculture, or services
    - Relevance to business must be established; second-hand machinery needs a certified valuation
  • 2. Cost and Financing Quantum:
    - Based on supplier's quotation; Union Bank may finance up to 85% of cost
    - Loan-to-Value ratio assessed; second-hand equipment may get a lower LTV
  • 3. Condition and Depreciation:
    - Preference for new machinery
    - Second-hand requires valuation, proof of ownership, and lifecycle viability
    - Depreciation rate affects loan tenure and terms
  • 4. Hypothecation of Machinery:
    - Machinery is hypothecated to the bank as primary security
    - Maintenance and insurance are mandatory
  • 5. Applicant’s Financial and Business Profile:
    - Minimum 2 years of stable operations, no defaults in past 12 months
    - Assessed on cash flow, ITRs, revenue post-machinery purchase
    - Minimum BBB credit rating (for non-MSMEs)
  • 6. Documentation Related to Machinery:
    - Mandatory: Quotation, Valuation Report (for used), Purpose Statement
    - Incomplete docs may lead to delays/rejection
  • 7. Scheme-Specific Requirements:
    - Union Equipment Finance: For high-value equipment with a strong business case
    - Union Mudra: For micro-enterprises, simple machinery with minimal documents
    - Nari Shakti/Stand-Up India: Special terms for women and SC/ST-owned businesses
  • 8. Market and Industry Factors:
    - Machinery must be standard for the industry
    - Economic viability assessed post-acquisition
  • 9. Insurance and Maintenance:
    - Insurance may be required (especially for high-value equipment)
    - Applicant must ensure maintenance to align with loan tenure

Frequently Asked Questions (FAQs)

1. What is a machinery loan from Union Bank of India?
A machinery loan is a financial product offered by Union Bank to help businesses (MSMEs, non-MSMEs, startups, etc.) purchase or upgrade machinery/equipment for productive purposes, such as manufacturing, construction, or agriculture. Schemes like Union Equipment Finance provide funding for equipment ranging from small tools to high-value industrial machinery.
2. Who is eligible for a machinery loan?
Eligible Applicants:
  • MSMEs: Registered under Udyam, with at least 2 years of operations and profit-making status.
  • Non-MSMEs: Contractors or businesses with a minimum BBB credit rating.
  • Women Entrepreneurs: Through schemes like Union Nari Shakti (50%+ women ownership).
  • SC/ST or Women Borrowers: Under Stand-Up India for greenfield projects.
  • Micro-Enterprises: Under Union Mudra for small-scale equipment.
Other Criteria:
  • No Special Mention Account (SMA-2) status or defaults in the last 12 months.
  • Valid business registration (e.g., GST, Shop Act License).
3. What types of machinery can be financed?
New or second-hand machinery used for business purposes, including:
  • Industrial equipment (e.g., CNC machines, textile looms).
  • Construction vehicles (e.g., excavators, cranes).
  • Agricultural tools (e.g., tractors, harvesters).
  • Specialized equipment for manufacturing or services.
Second-hand machinery requires a valuation report to confirm condition and value.
4. What is the loan amount available?
Union Equipment Finance: ₹10 lakh to ₹50 crore.
Union Mudra: Up to ₹10 lakh (Shishu: ₹50,000; Kishore: ₹50,001–₹5 lakh; Tarun: ₹5,00,001–₹10 lakh).
Stand-Up India: ₹10 lakh to ₹1 crore.
Union MSME Schemes: Varies based on business needs, typically up to ₹10 crore for MSMEs.
The bank finances up to 85% of the machinery cost, with the borrower covering the margin.
5. What documents are required to apply?
KYC: PAN, Aadhaar, passport-sized photos, address proof.
Business Proof: Udyam Registration, GST certificate, Shop Act License, or incorporation documents.
Financials: 2 years’ audited balance sheets, ITRs, 6–12 months’ bank statements.
Machinery-Specific: Quotation/proforma invoice, valuation report (for second-hand equipment), purpose statement.
Scheme-Specific: Women ownership proof (Union Nari Shakti), caste certificate (Stand-Up India).
Minimal documentation for smaller loans (e.g., Mudra Shishu).
6. How can I apply for a machinery loan?
Online: Visit www.unionbankofindia.co.in, go to “Loans” or “MSME Banking,” and apply under the relevant scheme. Upload documents and track application status.
Branch: Visit a Union Bank branch, submit documents, and fill out the application form.
Government Portals: Apply via Udyamimitra (www.udyamimitra.in) or MUDRA portal for Union Mudra loans. Processing is quick, with approvals subject to document verification.
7. Is collateral required for machinery loans?
No collateral is required for most schemes. The financed machinery is hypothecated to the bank, serving as security.
Schemes like Union Mudra and Union Equipment Finance are collateral-free, making them accessible for businesses with limited assets.
8. What are the interest rates for machinery loans?
Interest rates are competitive and linked to the Marginal Cost of Funds-based Lending Rate (MCLR) or External Benchmark Lending Rate (EBLR).
For Union Mudra, rates range from Base Rate (around 9.65%) to Base Rate +1.50%, depending on the category.
Exact rates depend on the applicant’s credit profile, loan amount, and scheme. Contact the bank for current rates.
9. What is the repayment tenure?
Union Equipment Finance: Up to 7 years, based on machinery type and repayment capacity.
Union Mudra: Typically 3–5 years, extendable for larger loans.
MSME Schemes: Up to 15 years for high-value loans.
Flexible EMI options are available to suit business cash flow.
10. Can I finance second-hand machinery?
Yes, second-hand machinery is eligible under certain schemes (e.g., farm mechanization).
Requirements:
  • Valuation report by a certified valuer.
  • Proof of ownership transfer.
  • Assurance that the equipment is not obsolete.
The loan amount may be lower due to depreciation.
11. Are there any tax benefits?
Yes, the interest paid on the machinery loan is tax-deductible, reducing the business’s taxable income. Consult a tax professional for specific benefits under Indian tax laws.
12. What happens if I default on the loan?
The bank may seize the hypothecated machinery to recover the outstanding amount.
Default impacts your credit score and may lead to legal action or restrictions on future borrowing. Timely repayment is crucial to avoid penalties.

Types of Machinery Loans Offered by Union Bank of India

  • Union Equipment Finance
  • Union Mudra (Shishu, Kishore, Tarun)
  • Union Nari Shakti
  • Stand-Up India
  • Union MSME Suvidha
  • Union Progress
  • Union Sanjeevani (for healthcare equipment)
  • Union GST Gain
  • Union Start-Up Scheme