Whether you run a construction company that needs a crane or a restaurant that needs a new oven, purchasing used equipment is often the most economical option. Not to mention, buying new equipment is extremely expensive, especially for small businesses and startups that may not have that much cash to put down.
A used equipment loan is exactly what it sounds like: a small business loan that you use to purchase pre-owned equipment for your business. Buying used equipment is great for small businesses because it gets you the machinery you need without paying the full price of new gear up front. For certain businesses, used equipment financing is more economical than new equipment financing.
Many equipment lenders lend for both new and used purchases.
Some lenders are a little hesitant about used equipment loans because, after all, the equipment itself is usually what secures the loan. Older gear may not have as much life left in it or might be more prone to breakage, so lenders see financing used equipment as a slightly riskier proposition. If you’re applying for a used equipment loan, you may face higher rates and shorter terms than if you were financing new gear.
Not all small business lenders fund used equipment loans. In fact, some lenders prefer only to work with certain types of equipment. Others shy away from funding technology items like computers, opting instead to finance heavy equipment and construction gear. Additionally, certain lenders will only fund equipment that’s less than 10 years old.
Unsurprisingly, the biggest advantage of buying used is that it costs less.
Buying used equipment means you’re taking out a smaller loan. Smaller loans can be easier to get approved for, which can benefit startups and owners with poor credit.
Used equipment does still depreciate, albeit at a slower rate. After all, the steepest drop in value usually happens in a piece of equipment’s first few years of use.
One thing to think about is that used equipment is often already on the lot, which means it could be delivered to your business much faster than if you ordered something new.
On the downside, used equipment may not last as long as something you buy new, and you may have to spend more time and money on repairs.
Apply for a Loan for Used Equipment
It might seem intimidating to apply for a loan for used equipment. But the process is pretty similar to financing new gear.
The most important thing is to know exactly what you need and how you’ll use it. Do a little market research and figure out how much the gear you’re after typically costs. Then, think about your budget and your future cash flow to see what you can comfortably afford.
Before you actually start borrowing for equipment, you should run the numbers through an equipment loan calculator. That way, you can see exactly what your estimated monthly payments and total interest might look like.
Most lenders want an equipment quote when you apply, but even if you haven’t finalized a purchase, you still need to know what you’re looking for. Don’t buy from just anyone. Reputable manufacturers, dealers and third-party vendors are all great places to start.
Ask the seller for a price, the equipment’s model and serial numbers, and for its ownership and service history. Make sure to check the gear out in person, or hire a professional inspector to take a look.
Remember to account for all the costs beyond the equipment’s purchase price. What does it cost to ship? To install? To insure? Is the machinery going to need regular maintenance? These are all important factors to consider when figuring out your loan budget.
As with any small business loan, it’s important to look at your business and know where you stand. By doing so, you can save time researching loans you’re not qualified for. Most equipment lenders care about your annual revenue, your time in business and your personal credit score. Every lender has slightly different standards when it comes to this criteria.
Since the equipment is usually the loan’s collateral, some lenders are more open to funding startups and borrowers with bad credit.
In addition to thinking about how much you need, it’s also good to consider whether you can afford to make a down payment. You want the best rates, but not everyone can swing a down payment. They aren’t always required, but they can boost approval odds and can get you better rates and terms.
When comparing lenders, it’s important to shop several, even though it might be tempting to just go with the first option. Start by making sure the lender finances your kind of equipment–not all of them do. Then, compare things like terms, rates, fees, funding speed and ease of application.
If you’re looking for a used equipment loan, there are a few types of lenders worth checking out first.
Banks and SBA lenders usually offer the best rates and terms, but they also have pretty strict requirements and slow funding. Online lenders are faster and more flexible, but they aren’t always the most affordable option. Specialized equipment lenders like CAG Truck Capital or AgDirect are niche lenders who actually understand the equipment you’re looking to finance.
Banks and SBA lenders are a little more hands-on than online lenders and usually require a lot of paperwork and documentation, some of which you may have to submit in person at a branch. Online lenders use automation to collect their data, and you usually only have to send in a few essential documents.
Whatever kind of lender you pick, you’re going to have to hand over some basic documents.
A lender will want basic information about you and your business.
The lender will also want to see both your personal and business bank statements.
You’re probably also going to need your tax returns for both your business and yourself.
Your business financial statements.
The amount of your down payment.
And the seller’s quote for the equipment.
Once your loan is approved, the lender should send over an equipment loan agreement. Don’t rush to sign this contract: make sure you take the time to read every single term carefully. Ask the lender about anything that doesn’t make sense.
Once you sign your loan agreement, the lender should send your funds to your business bank account. Depending on your bank, the transfer can take a few business days.
So should you buy new or used? Here’s the thing: there’s no right answer for everyone. Sometimes, it’s better to finance new equipment. Sometimes, used is the way to go. It depends on your cash flow and on what you actually need.
New equipment makes a lot of sense if what you do requires you to keep up with the latest tech and features.
New equipment can make a lot of sense if you need the reliability. New equipment breaks down a lot less than used equipment, and it often comes with a warranty.
If you want the equipment to have the longest possible service life, then buying new is the way to go.
If your business has strong finances and credentials and you can handle making the payments on a large loan, then new may be the way to go.
Used equipment makes a lot of sense if money’s tight and you need to get a low price.
If your business credentials are a little weak, you may not get approved for a larger loan.
Used equipment makes a lot of sense if you’re in an industry like farming or agriculture, where older gear works just as well for you as new equipment would.
If your equipment doesn’t make or break your business operations or you won’t use it on a daily basis, spending less up front to buy used just makes more sense.
About Delancey Street
Delancey Street is a premier, and award winning, business debt settlement company that helps business owners nationwide. Our goal is simple: help you escape debt in a safe and legal manner. Based out of New York, we can help in 49 of 50 states. We tell you how it is; because your business and future is on the line.
