Managing expenses and maximizing cash flow are essential for every business. Therefore, when it's time to finance equipment, considering used models can be a great way to save money. Choosing used equipment can lead to significant cost savings and free up cash to reinvest in other areas of the business, such as marketing, employee development, or product or service improvements.
While used equipment typically has lower price points than new equipment, the purchase process is more involved. Potential buyers need to ensure the equipment operates effectively and safely, has been well maintained, and includes the required documentation. In this blog post from Huddle Business Capital, we discuss 5 questions to ask before financing used equipment. Our tips and information are geared towards used equipment purchases made through an equipment vendor or an auction house, not from a private party.
When acquiring new or used equipment, it's important to acknowledge the potential for unexpected performance issues. However, this risk tends to be greater with used equipment due to the wear and tear it has experienced over many hours of use. Additionally, if the equipment is used outdoors, such as heavy construction machinery, it has been exposed to various weather conditions that can cause issues.
So, in addition to conducting a visual inspection of the equipment, ask the seller for its complete maintenance history. This history can include details such as inspections, cleanings, and repairs, as well as any downtime caused by specific issues. Having this information can give you a good idea of how the equipment has been cared for, helping you make an informed purchasing decision.
It is important to have access to essential documentation for used equipment to verify that there are no existing loans or judgments against it. Important documents to review include a clear title, records of any ownership changes (if applicable), a Uniform Commercial Code (UCC) filing, and documentation indicating whether the equipment has ever been seized, stolen, or repossessed.
Most equipment vendors and equipment auction houses have these and other related documents available or can provide them on request. Ensuring you have access to all relevant information will help minimize risks and provide you with peace of mind.
Equipment vendors and auction houses want to move inventory, so they should be open to allowing prospective buyers to inspect used equipment before moving forward with a purchase. Inform the vendor sales manager or auction house associate that you (or a mechanic) would like to inspect the equipment thoroughly. The type(s) of equipment you are interested in will determine what to inspect for. Here are some things to look for based on several popular types of equipment that are financed.
Construction vehicles, heavy machinery, and commercial vehicles - Check for engine problems (difficulty starting, loud noise when started), rust, cracks, tire wear, discolored exhaust fumes, oil leaks, and low fluid levels.
Office equipment (computers, servers, copiers, etc.) - Check for signs of external and internal wear, and for abnormal noises when powered up. Verify with the vendor or auction house that the operating systems and drivers are up to date.
Restaurant equipment (commercial ovens, refrigerators, etc.) - Check for rust, burn marks, cracks, dents, and signs of food bacteria and mold. If possible, test the power to ensure there are no abnormal noises or odors, such as burnt electrical wire.
Medical and dental equipment (X-ray machines, treatment chairs, etc.) - Check X-ray machines to ensure features and functionality appear to work, and request existing sample images from the vendor or auction house. Inspect all medical and dental equipment to ensure it functions as intended and check for dents, rust, cracks, or loose welds.
Land surveying equipment (Total Stations, digital levels, tripods, etc.) - Check all types of equipment for dents or signs of heavy drops. Examine lenses for cracks, scratches, fogging, or mold, and open battery compartments and look for corrosion.
When purchasing used business equipment, it's important to understand that it typically does not come with a warranty. Therefore, you should exercise caution and conduct thorough inspections or seek additional assurances, such as ownership and maintenance records, from the equipment vendor or auction house regarding the equipment's condition.
That said, some equipment vendors and auction houses include warranty protection for used equipment. These warranties can cover a variety of issues, ranging from mechanical failures to parts replacement, thereby reducing the risk associated with purchasing pre-owned equipment. By opting for used equipment with a warranty, you can feel more confident in your investment and have support in case of unexpected problems.
Over time, equipment naturally wears and deteriorates due to constant use and environmental factors. When this occurs, maintenance and repairs may be needed, along with possible replacement parts. Having prompt access to replacement parts means your equipment can be updated or repaired in a timely manner, minimizing downtime.
Ask your equipment vendor sales manager or auction house associate if the used equipment you are considering has replacement parts readily available. Ask about the lead times for ordering them, and whether they are stocked on-site or need to be specially ordered. If replacement parts are unavailable, consider seeking alternative equipment.
This Huddle Business Capital blog article is purely educational and contains general information and opinions; it is not intended to provide advice or recommendations of any kind. Huddle Business Capital is not affiliated with nor endorses the companies mentioned in this article.