Answer Book question
Keep working capital. Buy the machine with a bank loan under a collateral-free or subsidy-linked scheme after you have validated demand. Your own ₹25 lakh should cover the margin money the bank requires, six to nine months of running costs, and a reserve. Businesses die of cash shortage far more often than of machine shortage.
Keep working capital. Buy the machine with a bank loan under a collateral-free or subsidy-linked scheme after you have validated demand. Your own ₹25 lakh should cover the margin money the bank requires, six to nine months of running costs, and a reserve. Businesses die of cash shortage far more often than of machine shortage.
Two food-processing start-ups in Pathanamthitta. One spends ₹22 lakh on a plant and runs out of cash in month five waiting for payments. The other spends ₹8 lakh, finances a ₹15 lakh machine through a bank with a subsidy scheme, and keeps ₹17 lakh as working capital and margin. The second survives the slow first year.
Term loans for machinery are what banks are designed to give, especially with a subsidy scheme attached. Working capital is what banks are reluctant to give a new business. Use your own money for the thing the bank will not fund.
Bank margin requirement (typically 10–25 percent of project cost) Scheme whether you may qualify for the machine Months of working capital needed Receivables cycle in your industry Reserve
Using own funds for the machine "to avoid debt" and then having no runway.
Several Kerala schemes give capital subsidy on machinery financed through banks; buying with cash can forfeit the subsidy. Check before paying.
₹25 lakh: ₹4 lakh margin money, ₹15 lakh working capital, ₹6 lakh reserve. Machine ₹16 lakh via bank loan with subsidy reducing the effective cost.
If the machine is small and the business is cash-generating from day one, paying cash can be fine.
Validate demand Get the bank's margin requirement Check subsidy before purchase
Should I buy machinery with cash or finance it? Should I apply for subsidy before buying machinery? How much working capital do I really need?
Loans, grants & subsidies · Start or grow a business
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