The Ins and Outs of Used Equipment Financing for Your Business

Published February 29th, 2024 by River Point Capital

Nearly half of small businesses plan to expand in 2024, according to a recent survey. A critical part of most business growth is equipment.

You can economize by choosing quality used equipment instead of new. The purchase price is lower, but it can still be significant. Used equipment financing helps you get the equipment you need.

Used equipment financing can be used for most types of equipment. Learn more about how used equipment financing can help your business grow.

Benefits of Used Equipment Financing

Financing your business equipment gives you several advantages. It's more affordable, and you can order the equipment more quickly.

Make Affordable Payments

Used equipment financing usually has affordable monthly payments. Financing has a smaller effect on your cash flow than one enormous up-front purchase. Your budget can account for a fixed monthly expense.

You may qualify for a lower interest rate because the equipment is collateral for the loan.

Spreading your payments over time aligns the cost of the equipment with the financial benefits. Realizing the full benefits of an equipment purchase can take years.

Purchase Equipment Sooner

You can get the equipment your business needs right away. You aren't required to wait until you save enough capital to purchase equipment outright. You benefit more quickly from upgrading equipment, which can mean improved efficiency, greater capacity, and more advanced technology.

Build Business Credit

Equipment financing can help build your business credit. A good business credit score helps you get a better interest rate on future loans. You can access cash for business growth more easily.

A good credit score may qualify you for lower insurance rates. You may be able to negotiate better terms with your suppliers.

Finding a Lender for Used Equipment

Not all lenders offer used equipment financing. You'll typically have some options, though.

A traditional bank or credit union may offer better interest rates and loan terms. The application process is usually lengthy, though. The requirements for a loan are stiff.

Online lenders have a shorter application process. The requirements are usually more relaxed. However, the level of service you receive during and after the loan signing is often not the highest quality.

A local or specialized lender understands your business and the market where you operate. They may work with you to structure a financing package that fits the unique needs of your company.

How to Apply for Used Equipment Financing

The loan process will vary somewhat depending on the lender. You can expect certain basic requirements.

Determine the Value of the Equipment

Used equipment financing is a type of asset-based financing. The equipment serves as collateral for the loan. The lender will need to establish the value of the equipment you want to purchase.

For new equipment, the sale price is usually the value. Used equipment is somewhat more complicated. The value depends on a variety of factors, like its age, hours or mileage, and maintenance record.

The lender may ask for an appraisal of the equipment. You'll need to provide the serial number, specifications, and any other information you have that will help with a valuation.

The lender won't finance more than what they decide the equipment is worth. If you agree on a higher price with the seller, you'll only be able to finance up to the value the lender sets.

Show the Financial Strength of Your Business

Even the most lenient lenders have basic requirements for the financial strength of your business. You'll get better loan terms if you can show that your business is on good financial footing.

You'll need to demonstrate that your business has enough cash flow to handle monthly loan payments. Many lenders want to see that your company is more than a year old. They may have a minimum threshold for your annual revenue.

Typical documents include a profit and loss statement and a balance sheet or cash flow statement.

Show Your Creditworthiness

Your business credit score is an important part of getting a used equipment loan. The most important factor in your business credit score is your payment history. The length of your credit history is another factor.

Your business credit score also factors in how much debt your business has, the size of your business, and the riskiness of your industry. Unlike a personal credit score, business credit scores range from 1 to 100.

If you don't have a very long credit history or your business credit is low, you may need to use your personal credit score as well. You can use the same types of documents you would use for a personal loan, such as:

  • Tax returns
  • Bank statements
  • Proof of other assets

You can check your business credit score before you apply for a loan. The three credit reporting agencies are Dun & Bradstreet, Equifax, and Experian.

Free options are available for a basic report. A fee applies if you want more detailed information.

Financing Rates and Terms for Used Equipment

The interest rates for used equipment financing are usually the same as for new equipment. These rates follow current market conditions.

The rate your lender offers you depends on your qualifications. You may have fixed and variable rate options.

The term length depends on your qualifications and the expected lifespan of the equipment. A top-of-the-line industrial CNC machine can last 20 years, so a loan term of as much as seven years is possible. A semi-truck with 350,000 miles may not have as many years left, so the loan term will be shorter.

Take Advantage of Used Equipment Financing

Used equipment financing can support your business growth. Whether you're upgrading equipment or expanding your company, financing can help you get the equipment faster.

Riverpoint Capital understands the importance of having the right equipment at the right time. We've spent more than a decade helping business owners grow. We'll work with you to find the financing package that fits your needs.

Contact Riverpoint Capital today to schedule a meeting with one of our financial managers. We're focused on building a relationship with each of our clients, and we know you'll notice the difference.

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