If you’ve ever purchased a vehicle, then you know what they say about new ones. A new vehicle depreciates thousands of dollars as soon as you drive it off the car lot. This alone is enough steer buyers toward purchasing only previously-owned vehicles. And, there is the price difference between new and used vehicles that keep budget-focus buyers solely in the more affordable used market. On the other hand, there are buyers who insist on purchasing only new vehicles, either due to personal preference, not knowing the previous owners’ maintenance diligence, and/or knowing they’ll keep the vehicle long enough to pay new vehicle pricing.
Do the same car buying principles apply to business owners when they want to obtain essential business equipment? And, is it easier to get financing for new or used business equipment?
Global Financial & Leasing Service (GFLS) was created to meet the equipment financing needs of small to mid-sized businesses all over the United States. Our team finds equipment-financing solutions for a wide range of companies and a wide range of credits. Partnering with both clients who have great financials and credit history and those who have less-than-perfect credit scores or have startup companies, GFLS has the ability to provide equipment-financing solutions. For those who have been turned away from traditional equipment lenders, we work hard to create a structure that will work for the situation. Since we work with customers across all credit ranges, we’re often asked about feasibility of financing equipment, and whether new or used is the way to go.
What Are the Advantages of Financing New Equipment?
Financing new equipment has a couple of advantages that can work in your favor. First, lenders might perceive new equipment as a less risky investment on their part. Like new vehicles, new business equipment used in a variety of industries typically come with warranties, improved reliability and reduced maintenance costs. The idea of reduced risk can make lenders more willing to offer financing options to business owners with less than perfect credit. After all, the equipment itself acts as collateral for the equipment financing loan.
Second, new equipment often includes the latest technology, which can measurably increase a company’s efficiency, productivity and profitability. These potential benefits can support your application for financing, especially when combined with a solid business plan and growth projections.
What Should You Consider About the Challenges of Financing New Equipment?
While there are clear advantages to financing new equipment, there also are potential challenges, which are similar to those you’ve probably experienced if you’ve decided to purchase a new car over a used one.
Like new vehicles, new equipment is typically more expensive than used equipment, meaning higher financing amounts. For business owners with less than perfect credit, the higher the financed amount, the tighter the lending criteria. In this case, it’s essential to find an alternative lender, like GFLS, that specializes in working with applicants who’ve been turned away from traditional lenders, like big banks.
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Also, that drive-off-the-lot depreciation is a factor. New equipment depreciation rate is usually higher, meaning the value of your collateral backing the financing decreases more rapidly.
What Are the Benefits of Financing Used Equipment?
Financing used equipment offers distinct advantages that can make it an attractive option for business owners with less than perfect credit. First, used equipment is generally more affordable than new equipment, resulting in lower financing amounts and potentially lower monthly payments or a shorter loan term. Of course, lower monthly financing payments are easier on monthly cash flow.
Second, used equipment tends to have a slower depreciation rate compared to new equipment, making it a relatively stable asset that lenders can count on as collateral. In other words, that rapid first-use depreciation has already occurred. This stability may lead to increased financing options, particularly if you have credit blemishes.
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What Should You Know About the Drawbacks of Financing Used Equipment?
While financing used equipment has its advantages, including potential lower overall costs and shorter loan terms, there are some potential drawbacks. Used equipment may have a shorter lifespan, higher maintenance costs and a higher risk of breakdowns or malfunctions compared to new equipment.
Also, the onus is on the business owners to perform their due diligence to ensure the used equipment they intend to finance is in good operating condition, has a reasonable remaining useful life, and aligns with operational needs and growth plans.
There’s No Simple Answer to Whether You Should Finance New or Used Equipment, so Talk to an Expert
The bottom line is that whether you apply for financing new or used essential business equipment depends on your lending options, your lender’s ability to meet your needs regardless of your credit score, the type of equipment you need and your budget. Finding the right financing solution takes evaluating your specific circumstances and considering the short- and long-term advantages and challenges.