Considerations for Making an Equipment Purchase
At AmurEF, we can finance new or used equipment, but there are many considerations that you must take into account before making an equipment purchase.
Buying Used Equipment
When buying used equipment from a dealer, we can finance titled or non-titled equipment. We can also finance titled equipment when you are buying it from a private party; however, we do not finance private party sales of non-titled equipment, as they can become quite complex to process. This is mainly due to the difficulty of finding out whether there are any pre-existing liens on that equipment (asset-specific or blanket) from another lender, which requires a lengthy and costly lien search. If the seller has other liens on the equipment, the prior lien holder can come knocking on our door demanding the equipment back.
Benefits of Used Equipment
Buying used equipment can have the same benefits as buying a used car; similarly, avoiding initial depreciation the minute the car is driven off the lot. Buying any equipment for your company is a significant investment and maximizing the use of your capital is always a smart business decision. Many customers can purchase several used pieces of equipment for the price of one new piece of equipment. For many young companies, this is an appropriate approach to help them receive all the equipment they need for their operations in a very cost-effective manner.
In general, well maintained used equipment holds its value when compared to new equipment. In some industries, older equipment is more advantageous as its engines or machinery may be easier to maintain lacking some of the newer computerized controls. For example, in the professional arborist industry a wood chipper will typically lose 20% of its value quickly and then 10% of its value every year after until the value starts to level off. A new $70,000 chipper may have a resale price of $50,000 two/three years later, but a used $45,000 chipper may still be worth $36,000 after the same period.
Benefits of New Equipment
New equipment does have several advantages. First impressions can make a huge impact in closing new business. A fleet of newer equipment can give customers confidence in your professionalism and help close business when compared to a competitor with trucks and equipment that are starting to show their age. Also, in some industries, there is an adage that old equipment is expensive equipment. You need to consider any potential downtime for unexpected repairs that may arise from owning older equipment with a questionable service history, as well as the availability of spare parts for older vintage units. The cost of this down time can make the decision to purchase newer equipment an easier one, especially if it means needing expensive rental equipment to replace the out of service items or just losing work due to equipment issues. Thus, always take your time working with the vendor or seller to understand the equipment’s history and condition.
New equipment can also make budgeting easier if there are service or warranty contracts that come with it. If you match the term of the lease or loan with the length of the warranty contract, it is easy to predict the cost of ownership over the term and avoid big repair bills later on, which can quickly erase your hard-earned profits.
The decision whether to get new or used equipment is an important one, and each situation is different. In general, however, new equipment will have higher upfront capital costs and lower long-term ownership costs; the opposite applies to used equipment. If you have any additional questions about AmurEF’s funding options for either new or used equipment, please don’t hesitate to call one of our representatives for help.
Thomas Hodgson is a Senior Account Manager out of the Mid-Atlantic area with over 25 years equipment financing experience. He specializes in a few industries including the professional arborist industry, printing, and lite construction. Tom primarily works with vendor partners and manufacturers on the east coast.