How to Finance Used Equipment

Whether it’s a crane for your construction business or an oven for your restaurant — buying new equipment can be a drain on your budget. If you’re looking to save a little money, you might consider getting used equipment instead of buying new.

Used equipment financing is a type of small-business loan for buying pre-owned equipment, machinery or tools. This financing allows you to access the equipment you need without bearing the full upfront cost of buying it new — making it a more cost-effective option for some businesses.

Yes, you can get financing for used equipment purchases. Many lenders that issue equipment loans offer options for both new and used purchases.

Because used equipment financing is typically secured by the machinery itself, however, some lenders may be more hesitant to offer loans for older equipment. Used equipment tends to have a shorter remaining lifespan and a greater susceptibility to damage, which increases the lender’s risk. As a result, these loans often come with higher interest rates and shorter repayment terms compared with new equipment financing.

Additionally, lenders may only finance certain types of used equipment, such as construction or heavy machinery, but exclude computers or similar technology. They also may put limits on the age of the equipment they will finance — for example, some companies won’t finance equipment older than 10 years.

The process of financing used equipment isn’t all that different from financing new equipment. Follow these steps to get started:

Determine exactly what type of equipment you need and how you plan to use it in your operations. Consider how much the equipment might cost and what your budget looks like.

To make sure you can afford any potential debt, use an equipment loan calculator. This tool can help you estimate payments and interest costs so that you can see what works best for your financial situation.

Most lenders will want you to include an equipment quote as part of your application. Look for reputable vendors or suppliers that offer the equipment you need, such as established dealers, manufacturers or third-party sellers.

As you compare vendors, ask each company for detailed information about the equipment, including the selling price, the model or serial number, ownership history and maintenance records. You’ll want to verify that the equipment is in good condition, either by seeing it in-person or hiring a third-party inspection.

In addition to the selling price, you should also factor in additional costs such as transportation, installation, maintenance and insurance — as these can affect your financing needs and overall budget.

Knowing where your business stands ahead of time can help save you time when comparing loan options. Although business loan requirements vary, most lenders will consider similar criteria, including annual revenue, personal credit score and time in business.

Even if you’re a startup or have bad credit, you may still be able to qualify for used equipment financing. Because the equipment itself serves as collateral, some lenders can be more lenient with their requirements.

You should also consider whether you can offer a down payment — and if you can — how much. Although down payments aren’t always required, providing one can increase your chances of qualifying, as well as help you access better rates and terms.

Research and compare several used equipment financing companies to determine which is the right fit for your business. Make sure that the company can finance the type of used equipment you want to purchase, as well as consider its repayment terms, interest rates, fees, funding speed and application process.

You might start your search with these options:

Keep in mind that banks and SBA lenders will likely offer the most competitive rates and terms — but will have strict qualification requirements and be slow to fund. For faster or more flexible funding, you might consider online lenders. Specialized equipment lenders, like CAG Truck Capital or AgDirect, can be a good option if you want to work with experts knowledgeable about the specific type of equipment you want to buy.

The application process will vary largely based on the type of lender you choose. Bank and SBA lenders, for instance, typically require extensive documentation and may require you to visit a branch to apply. Online lenders, on the other hand, often use automated technology to streamline the application process, with minimal documentation required.

In any case, you should be prepared to provide the following:

• Basic information about you and your business.

• Personal and business bank statements.

• Personal and business tax returns.

• Business financial statements.

After you’ve submitted your application and received approval, your lender will provide you with an equipment loan agreement. You should review the loan agreement carefully and make sure you understand all the terms and conditions. If you have any questions or concerns, reach out to your lender for clarification before signing.

Once you’ve signed the agreement, your lender will transfer the funds to your business bank account. Transfers may take a few business days (and this can vary based on your bank), but once you have access to your funds, you can use them to purchase your equipment.

Whether or not you should buy new or used equipment depends largely on your individual needs and financial situation. To help you decide, however, consider the following:

• You want the latest technology with the most advanced features.

• Reliability is a priority — new equipment is less likely to have mechanical issues and often includes a warranty.

• You want to maximize the lifespan of your equipment.

• You have strong credentials and can afford to pay back financing for a new equipment purchase.