Finance Business

Registering an Asset Finance company in India

Registering an asset finance company in india

Asset Finance company is a company that deals with the finances of physical assets like automobiles, cars, tractors, machines, generators, etc. However, an asset finance company in India has to get registered under the Reserve Bank of India to start an asset finance company; otherwise, the RBI is the authority concerned with imposing a fine on such asset finance companies that are operating without prior registration. The other name for the asset finance company in India is also famously known as a vehicle finance company.

The principal business of the asset finance company is physical assets that provide support to various economic activities such that the income should not be less than 60% of its total assets and total income, respectively.

In India, AFC is the short form of Asset Finance Company. It plays a significant role in India’s financial sector by funding the corresponding requirements of other financial institutions like banks by meeting their economic requirements. Asset Finance Company in India is often used by borrowers for short-term cash loan requirements. Asset finance company in India is a part of a Non-banking financial company. If there is any question regarding the company, whether it is a loan company, investment company, or asset company, it shall be decided by the Reserve Bank of India.

In many cases, when a company borrows from AFC in India, it uses its accounts receivable as collateral. However, it is not uncommon for asset finance company in India to use inventory assets in the process of borrowing. Asset finance company in India also allows the respective companies to acquire a loan by showing the balance sheet assets of their company. It is indeed common to use AFC in India for short-term working capital requirements.

The criteria for the Asset finance company in India is much preferable to traditional banks due to its easier process as the loan financing is done based on company assets rather than the creditworthiness and future business prospects of the company, unlike the traditional bank.

What are the types of Asset Finance Companies in India

The types of ASA (Asset finance Companies in India) in India are:

Hire purchase Asset Finance Company

It is one type of Asset Finance company in India, where the borrower’s assets are purchased by the lender in their name until the borrower makes a repayment of the same to the lender over time. The borrower will have the said asset in his name only after he pays off the loan to a lender. An option will be given to the borrower by the lender to buy the asset at a very nominal price after completing the full payment of the loan.

Equipment Lease

One of the most popular asset finance companies in India is the equipment lease, which is commonly adopted by the public in India due to its freedom and flexibility of financing criteria. A contractual agreement will be entered between the borrower and the lender for equipment for business purposes for a certain specific period. However, the borrower will make a payment to the lender until the contractual period ends. After the contractual agreement on the lease comes to an end, the borrower can either return the rented equipment or have the choice to extend the lease, upgrade the equipment requirement, or buy equipment outright.

Operating Lease

An operating lease is much cheaper than an equipment lease as it is borrowed from the lender by the business for a shorter amount of time. Unlike an equipment lease of an asset finance company in India, an operating lease is usually for the short term but typically longer than an equipment lease but not necessarily for the full time of an asset. The borrower has to make a payment to the lender only if he used the asset and not completely for the asset value. Any business looking for a short- to medium-term use of equipment to fulfil its goals may adopt an operating lease from an asset finance company in India.

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Finance Lease

A finance lease Asset company in India is a financing company where the rights and duties of the assets are taken on by the borrower according to the duration mentioned in the lease agreement with the lender. Thus, it is the responsibility of the borrower to maintain the respective asset during the existence of the lease agreement.

Asset Refinance

This Asset Finance Company in India is commonly used by businesses who want to secure a loan from the lender by mortgaging their assets as collateral. Assets like property, vehicles, equipment, business accounts receivable, etc can be used by the borrower as loan collateral. Unlike traditional banks, which qualify the loans based on business creditworthiness, asset refinances AFC in India will sanction the loan to the borrower based on the asset size and value, a much easier procedure than other banks in India.

Role of Asset Finance Companies 

Asset finance company in India plays a significant role in helping businesses and individuals grow their respective businesses exponentially by managing and acquiring assets through various choices available under asset finance companies in India. In India, AFC provides loans to individuals and companies to purchase various tangible assets like machines, equipment, vehicles, tractors, etc. Asset finance company in India acts as an intermediary between borrowers and financial institutions that provide funds to the companies. Given below are the roles of asset finance companies in India:

  1. An asset finance company in India helps individuals and businesses who do not have enough liquidity or cash to buy new equipment for the development or expansion of their companies.
  2. AFC in India is a very flexible finance business compared to traditional banks, as they provide various choices to borrowers (individuals and businesses) like hire purchase, equipment lease, finance lease, etc. Borrowers through the asset finance company have the flexibility to choose the services according to their business and cash flows that will align with their requirements.
  3. With the growing number of asset finance companies in India, various risks are also spread across the finance companies. Such risks are derived from the assets of various industries. Thus, it is the responsibility of such a company to fight against such risks that have arisen with the advancement of technology.
  4. Businesses and individual can reserve their working capital for day-to-day use in business operations, emergencies, and various other strategies for investment by taking loans through an asset finance company in India.
  5. With the advancement of technology, it has become very important for companies to stay updated with technology to stay relevant in the market trends. AFC in India helps both individuals and businesses invest in the latest technologies and equipment without incurring the full cost.
  6. Various tax benefits are also attached to Asset Finance company in India such as a lease payment to the lender may be tax deductible as operating business expenses as a financial benefit of the lessee.  
  7. Asset finance company in India helps businesses and individuals to manage and dispose of assets. This includes maintenance of the asset, purchase, upgradation, and handling until the end of the lease agreement.
  8. There are few industries where the asset finance company has specialized their expertise by providing services to those companies aligning with their business goals and development.
  9. Asset financial companies in India have maintained a relationship with other financial companies giving them access to other financial sources, thus in this competitive financial market they can provide funds to the borrowers.

Eligibility Criteria for Asset Finance Company in India

To get a non-banking license in India, a company needs to fulfil various requirements according to the Reserve Bank of India guidelines. Firstly, the company needs to get registered as per the Companies Act 2013, either as a private limited company or a public limited company. The applicant company has to go through various paperwork procedures to register before the Ministry of Corporate Affairs in India. After completing the documentation procedures as proof, a Certificate of Incorporation in India is given to the said applicant.

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Secondly, an applicant company must have a net-owned fund of Rs.2 crore that needs to be deposited before the concerned authority to obtain a certificate of no lien from the bank. This is important because the authority wants to ensure that the applicant asset finance company or NBFC has enough money to run the business and meet the customer’s demand and requirements.

Application Procedure for Asset Finance Company in India

In India, asset finance companies have to be registered before the Reserve Bank of India; it takes a couple of months to get registered because of the complexity of the due procedure registration. Given below are the procedures for AFC in India:

  1. Firstly, a company has to be registered either as a public or private entity, depending upon the choices of promoters or the founders, respectively. At the initial stage, a company may be registered with any amount of capital.  
  2. Next, the company has to raise an authorized or paid-up capital or maybe both of Rs.2 crore. This raising of capital could be done in the first step itself, but due to fear of rejection, it is usually done after the company registration.
  3. Thirdly, the said company needs to obtain a no-lien certificate by depositing an amount of Rs.2 crore (Two Crore) in fixed deposit.
  4. After completing the above procedure by depositing the fixed amount of Rs 2 crore, the company should get all the certified copies and complete the required checklist for registration before the RBI (Reserve Bank of India).
  5. The requirements for registration of AFC in India, according to the Reserve Bank of India (RBI), are as follows
  6.  Company registration certificate certified copy,
  7. certified copy of the main object clause in the company MOA (Memorandum of Understanding) relating to financial business.
  8. Company Board resolution Certified copy.
  9. A copy of the fixed deposit receipt and banker certificate of lien indicating balances in support of Net Owned Funds.
  10. Applicant company or group companies’ bankers report
  11. Now, the last step for registration for AFC in India is to fill out an online application for NBFC registration as an AFC in India. After completing the online application, RBI shall send you a company application reference number.
  12. After receiving the company’s application reference number for AFC in India, submit the hard copy to the regional office of the Reserve Bank of India office.
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Necessary Paper required for AFC in India

Below is the list of Required Registration Documents for AFC in India

  1. Copy of the PAN card.
  2. Identity Proof such as a driver’s license, passport, aadhaar card, or voter ID)
  3. Any Documents for address proof, such as Bank Statements, electricity bills, Mobile bills, Telephone Bills, etc.
  4. Passport-size photograph.
  5. Rent Agreement or Ownership document.
  6. Electricity Bill.
  7. A copy of the NOC (No-objection certificate) from the owner.

What are the Challenges and Risks faced by the Asset Finance Company

It is indeed challenging to fight various risk factors that are involved with the constantly changing landscape in asset finance companies in India. It is recommended that the asset finance company in India has a risk management team to navigate and combat such risks involved with the finance companies.

With the advancement of technology, it is recommended that the finance company stay upgraded with the new technologies so that they can track the illegal activities before they go out of their hand. A huge fund is needed to install such advanced technology, which is another challenge for asset companies. With the increasing number of cybercrimes, asset companies have to invest in navigating their company’s cyber security so that they can prevent money laundering activities.

A risk management team has to be implemented to monitor the activities of high-risk customers, and machine learning, like artificial intelligence, has to be introduced for better working facilities for the employees and customer experience.

List of Top Asset Finance Companies in India

Top asset finance companies in India are:

  1. Capital Need.
  2. Ace Finlease.
  3. Ganpati Finance.
  4. GlobexWallet.
  5. Kohlberg Kravis Roberts.
  6. Lendingkart Technologies
  7. Shriram Transport Finance Company.
  8. Sigma Consultants.
  9. Venus India Asset Finance
  10. Veritas Finance.

What are the advantages of using an Asset Finance Company in India?

  1. Asset Finance Company in India provides multiple options to customers depending on their business structures, such as hire purchase, lease financing, equipment leases, etc.
  2. As we know, the rate of interest is one of the major aspects of all kinds of loans. NBFC, an asset finance company in India, provides a competitive rate of interest.
  3. Another major advantage of asset finance companies in India is that borrowers or companies have the flexibility to decide on how long they are planning to take up the loan, either for the long term or the short term.
  4. It also helps the company or borrowers to increase the cash flow as it sanctions the loan based on asset value such as machines, vehicles, equipment, etc; thus, the borrower’s working capital is utilized for another purpose.
  5. Unlike any other bank NBFC or Asset finance company procedure, the documentation of loan criteria is quicker and easier.
  6. A tax deduction on the annual investment allowances helps the company to deduct annual corporate tax during the financial year.
  7. Asset finance helps businesses and companies to use existing assets as collateral rather than working capital, thus increasing the cash flow.
  8. When the company is in liquidity, such an asset finance company can help the respective company increase the working capital by taking loans against the company’s assets as collateral.
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Conclusion

Asset finance company in India is a financing company that all individuals and companies in any shape and size to acquire loans by putting their assets as collateral to invest in buying equipment, materials, etc., to increase the growth of the company by spreading the cost of purchase so that companies can keep their working capital in their business account for any crucial investments or expenditures to optimize their respective growth as a whole.

According to RBI, any NBFC can act as an asset finance company, subject to the income arising from the aggregate of physical assets supporting the economic activity not less than 60% of its total assets and total income, respectively. Once the companies satisfy this condition, they can visit the regional office in the jurisdiction where their registered office is located along with their certificate of registration as issued by the bank to classify them as asset finance companies.

Asset finance company in India allows businesses to purchase physical material assets, necessary for running the company by making a regular payment to the asset finance company against the collateral of the assets submitted for a loan by the respective company.

FAQs

  1. What is an asset finance company in India?

    An asset finance company in India is a financial company whose primary business is to provide loans to individuals and companies for buying physical assets, equipment, automobiles, cars, etc., to support the economic or productive activity of the businesses. A registration with RBI is mandatory to operate an Asset finance company in India.

  2. Which are the top 5 finance companies in India?

    The top 5 finance companies in India are Bajaj Finance Limited, Tata Capital Financial Services Ltd, Aditya Birla Finance Ltd, l & T Finance Limited, and Muthoot Finance Ltd.

  3. What is the asset finance industry?

    The asset finance industry is a business that provides a loan to companies and individuals for short-term or long-term to buy or invest in assets like equipment, motors, vehicles, tractors, etc. Most of the time, a company uses its balance sheet assets to borrow money or take out a loan.

  4. Is asset finance a loan?

    Yes, asset finance is a loan given to individuals and companies to buy or borrow assets based on their financial strength.

  5. What is the function of an asset finance company?

    Asset finance company provides loans to companies and individuals to buy, and lease physical assets like equipment, machines, vehicles, tractors, etc. They used the assets finance as the collateral for the loan taken and flexible repayment terms.

  6. What are the different types of asset finance?

    Types of Asset finance are hire purchase, leasing, finance lease, operating lease, asset-based lending, etc.

  7. What is an asset-backed loan?

    An asset-backed loan is a type of loan where the borrower keeps his tangible assets as collateral against the loan he has taken.

  8. What is the difference between asset finance and asset-based finance?

    Both asset finance and asset-based finance are sometimes interchangeably used. However, asset finance is a broader term for a service provided by the finance company to buy or lease physical assets by taking a loan, whereas asset-based finance is a loan taken by individuals and companies based on asset collateral.

  9. What is vehicle asset finance?

    Vehicle asset finance is a specific service category that focuses on providing a loan to an individual and company to buy assets such as tractors, cars, trucks, vans, etc.

  10. What asset is a bank loan?

    Whenever an individual or a company takes a loan from the bank, a collateral asset has to be mentioned in the agreement between the bank and the borrower as the security, and such collateral may differ based on the agreement.

  11. What are the two types of asset-based loans?

    There are two types of asset-based loans: first, traditional asset-based loans like accounts receivable, inventory, machinery, equipment, etc., and second, account receivable financing.

  12. What does an NBFC asset finance company mean?

    NBFC asset finance company is a specific type of finance company that provides loans to companies and individuals to buy or lease physical assets like machines, vehicles, tractors, equipment, etc. NBFC provides various banking services but does not hold a banking license.

  13. What is asset leasing?

    Asset leasing is a service where a borrower leases specific assets for a certain period of lease terms in exchange for a regular payment. This method of finance is used to get rid of large upfront purchases.

  14. What is asset financing vs leasing?

    Both asset financing and leasing are similar yet different in their structures; in asset financing, the borrower owns the asset by taking a loan from the lender, whereas in asset leasing, the lender owns the asset, and the borrower has the right to use the asset and not own it.

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