New or used equipment financing: The 4 factors you need to consider

Your company is growing. Your sales teams have filled the sales pipeline and you're trying to keep up with demand. The next move is to invest in the heavy equipment that will help you grow your business.

Thu Aug 19 18:13:00 EDT 2021
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No matter if your business is manufacturing, healthcare services, or construction, the purchase of heavy equipment is both a necessity and an important business decision. When it comes to deciding whether a new or used piece of equipment is the better investment, the answer depends on your business situation and needs. Although each purchase is unique, there are factors to consider that can help you better weigh your options and make the right decision every time.

1. Consider how crucial the equipment is to your operations

When considering a heavy equipment purchase, it’s important to consider how crucial that equipment is to your company’s success. Deciding if a piece of heavy equipment is vital to your operations or whether it will simply improve productivity can help you frame the purchase decision.

If a piece of equipment is considered vital and can either make or break your operations, purchasing or leasing a new piece of equipment may ensure that your company gets the full use of its lifespan. There’s even the possibility of trading in new leased heavy equipment after a few years for the latest version of that model. If an equipment purchase is less crucial to running everyday operations, buying a used piece of equipment could be of interest to an organization, as it will cut upfront costs while still ramping up productivity.

If the asset being purchased is not vital to regular operations but will only be used for a short period of time, reselling the asset is a viable option that could allow your company to recoup costs while seeing improved productivity while you use it. Industrial equipment like additional milling machines for a short-run manufacturing contract will allow your company to finish the job on time, and can then be resold to recoup expenses. The asset can also simply improve efficiency, like an additional EKG machine for a private clinic. The additional asset may not be crucial to running a clinic, but it improves customer service and allows more patients to receive treatment.

2. See what warranty and servicing is offered on used equipment

One of the advantages to leasing or purchasing new heavy equipment is the peace of mind that comes with having a manufacturer’s warranty and service calls for regular maintenance. From an outdated MRI machine breaking down and causing delays to patient appointment times to malfunctioning equipment holding up an entire assembly line, downtime is expensive.

With new equipment, dealing directly with the manufacturer and their service team is always easier and affords your company a simplified method of servicing the equipment without worrying about aftermarket parts depreciating the asset further or voiding the warranty.

If a used piece of equipment is out-of-warranty, the maintenance costs need to be calculated ahead of time. Although aftermarket parts may cost less, they can increase depreciation before resale and shorten the time between regular servicing. Your company will also need to contract a reliable third-party repair service provider.

Parts for older used equipment can sometimes be more difficult to find, especially if the manufacturer has discontinued a specific model. This could cause delays while the equipment is being repaired, which offsets the savings gained from the lower sale price.

3. Gauge future demand and equipment resale value

Major projects require major investments. This is especially true for the construction industry, where demand is seasonal in many regions and large projects can last several years. Looking at long-term projections, a company may realize that they can sell equipment that is no longer needed to inject liquid capital within the business. Although it may be tempting to think new equipment will hold its value for longer, the truth is that used heavy equipment retains much of its value after initial depreciation has been factored in.

Demand for used heavy equipment in the construction, manufacturing and healthcare industries is high. Assets that are no longer needed may easily be sold off. However, if your organization operates within a very niche sector of your industry, and the equipment you purchased is custom-made, there may be some difficulty in finding a buyer to liquidate the assets.

4. Find the right heavy equipment financing for your company

Heavy equipment purchases are a complex decision. With so many factors to consider, making a choice between financing new or used heavy equipment is never a yes or no question. Weighing all available options and keeping your company’s long-term objectives top-of-mind is necessary to make the most of your industrial equipment investments.

Talk to a financial expert with experience in commercial lending that understands your industry. They’ll be able to use their expertise to help weigh all your options and find the best heavy equipment financing solution for your business needs.