Guide to Financing Used Equipment
Purchasing equipment for your business is a
necessary investment in your success. However, there is a lot to consider
before making a purchase decision. In this comprehensive guide, we’ll explain
everything you need to know about financing pre-owned equipment versus buying
new.
What is Used Equipment Financing?
While the structure of an equipment finance agreement is virtually identical for used and new pieces of equipment, there are key aspects that differ, such as where you source the equipment from, and the repayment terms of the loan. Applying for used equipment loans is a straightforward process. Most lenders in the equipment finance space only require a 1-page application to review requests under $500K. Decisions can be made in just a few hours and funds can be released the next day! Blue Bridge Financial is an example of a credit lender, meaning our analysis of a loan request is focused on the client’s credit profile and strength of their business rather than an equity or loan-to-value position in the collateral. This enables Blue Bridge to be one of the most competitive lenders in our space when it comes to financing used equipment.
One of the main benefits of used equipment financing is that it allows you to look at a wider variety of equipment while preserving your cash flow with a manageable monthly payment. Used equipment purchases can also be written off as business expense–learn more about Depreciation expense on the IRS’s website.
What Should You Look For in Used Equipment?
When it comes to used equipment, some industries have much more extensive and attractive secondary markets than others. For example, rarely do companies invest in used technology like phones, servers, or computers due to accelerated depreciation and shorter useful life of those collateral types. Refurbished heavy machinery and construction equipment, on the other hand, is a great way to get your business off the ground at a discounted price. Follow these steps for choosing used equipment:
- Research different models before making your purchase. Read reviews and learn about features as well as potential issues.
- Inquire about the warranty status. Does the equipment come with any type of coverage?
- Ask to review maintenance records–you don’t want to purchase equipment that will break down before you’ve paid it off.
What Are the Benefits of Used Equipment Financing?
As mentioned, one of the primary benefits of considering used equipment is that it increases your options. Throughout the pandemic, dealerships producing new equipment faced severe delays in production due to supply chain shortages. It was nearly impossible to find new equipment on a dealer’s lot. Fortunately, many of those challenges have quelled, but dealerships are still not ripe with inventory as they may have been 4-5 years ago. These continued delays not only hurt the dealerships, but also buyers who need new equipment quickly to keep their operations running smoothly.
Luckily, used equipment markets provide a strong alternative in many industries. Online equipment marketplaces, auction houses, private party sellers, and independent used equipment dealers make tens of thousands of pieces readily available to buyers on a consistent basis. Not only are these pieces typically cheaper than new equipment, but they also have been through an early stage depreciation cycle, and are more likely to hold their value if they have done so already.
What Are the Challenges of Financing Used Equipment?
Now that we’ve covered the benefits of buying used, let’s look at the challenges.
- Used equipment loans usually come with higher interest rates.
- Many lenders will cap the loan term at 36-48 months or lower, as opposed to the 72 or 60-month term available for new equipment loans.
- Some lenders put limits on the age of equipment they will finance, such as 5-10 years.
- Used equipment may need more maintenance and will have a shorter lifespan.
Should I Buy New or Used Equipment?
Which option is right for you? Let’s consider a few common scenarios.
When to buy new:
Prioritizing Reliability
- If your business relies on a specific piece of machinery to generate a profit, and would be at risk without it, it may be best to buy a new machine to guarantee no mechanical issues and take advantage of factory warranty.
New Technology
- Depending on what type of machinery you are interested in, new technologies/features may be available that are either necessary for your business or could improve efficiency.
Long Term Investments
- For those who like to maximize the lifespan of one piece of equipment while minimizing early reliability issues
When to buy used:
Tight Budget
- Even if your interest rate is slightly higher for used equipment, the significant price difference could still result in a smaller monthly payment compared to new equipment.
Speed
- As we have covered, used equipment is more readily available in today’s market.
Specific Technology
- In some cases, older units may have specific power units, attachments, or other features that make them more desirable for your specific operation. If this is the case, finding that exact piece of equipment is the most important part of your financing process.
Why Should I Finance Used Equipment With Blue Bridge?
Unlike many lenders, Blue Bridge doesn’t have limits on the age of equipment we will finance. We also typically don’t cap the term length, making us one of the best options for businesses seeking used equipment financing.
“Our view is that someone who has been in business for a long time and is experienced operating similar equipment will have a well-established relationship with a service department or may even have the ability to make repairs themselves, which will minimize down time and ensure the business can keep operating at normal efficiency”—Nick Dervenis, Senior Director of Business Development
Another advantage of financing your used equipment purchase with Blue Bridge is finding “flexible, tailored solutions that fit your situation.” All you need to do is find the equipment you need and we will work to make the monthly payment work for your budget.
Our fast approvals and same-day funding, combined with the availability of used equipment, means you’re getting to work faster. We offer a 4 hour turnaround time for approval and possible same-day funding.
Personal oversight of each and every application means we are likely to say yes more often, and more quickly, than other lenders. There are no automatic rejections here.
Finally, if you finance used equipment from our inventory, not only do you get to take advantage of the Blue Bridge Benefits, you also receive savings on doc fees.
What does the process look like?
Within an hour of your application, a sales rep will call to complete the application for our underwriting team. Most deals only require a one-page application, although we may request three months of bank statements in certain situations.
Once the deal is submitted to credit, their underwriting only takes 1-3 hours. We are a credit lender, not an asset based lender, so the strength of the deal for us lies in the strength of the business and the guarantor. This is what enables us to have no age restrictions on collateral. Some lenders are solely concerned with LTV on their loans, so they will offset bad credit profiles with a large down payment to advance their equity position, or they will severely limit the types and ages of equipment they are willing to underwrite. As a credit lender, we want customers who can make their payments, and collecting the collateral to resell it should be the last grasp to save a loan.
Once the deal is approved the payment terms will be presented, and if the customer agrees, our documentation and funding team will work directly with the customer to get the funds released as fast as possible.
What are Blue Bridge’s requirements for loan approval?
- 610 minimum FICO
- We are able to approve a wide array of businesses and credit profiles, but it helps to go into the process with realistic expectations. For example, start-up rates start at 18%, so having a high credit score does not guarantee a low rate. Blue Bridge’s knowledgeable and experienced representatives can help you understand your options and find the financing that works for your business.
- No startup restaurants
- No startup trucking companies
- No bankruptcies in the last 5 years
About Blue Bridge Financial
Blue Bridge Financial provides uncommonly personalized service. We look that the unique needs and circumstances of each individual client, so we’re able to say “yes” more often, and more quickly, than other lenders. We’re able to offer the most competitive rates and terms in the industry, while making sure they are clear and understandable with no hidden surprises. With over 9000 businesses serviced, and an A+ BBB rating, Blue Bridge is ready to help your business move ahead with equipment financing. Contact us today!
