He was asking about this because he was already turned down by another equipment financing company due to the vehicle’s age. He wanted to finance a very good condition 2018 work truck for five years, and was told it was too old, which surprised him. Was 2018 really THAT long ago?

I told him I had bad news and good news. The bad news is almost every equipment financing company out there uses the exact same formula – they want the loan term and the vehicles’ age (in model year) to be equal to or less than seven years.

So right now, in the spring of 2023, most lenders will only let you finance a 2020 model or later for five years. The 2018 model mentioned could only get a three-year loan from another lender (note – if the math seems off by one, it’s not – we’re simply not counting the current year twice).

Now here’s the good news – Crest Capital is one of the only business lenders that will consider financing used vehicles without a hard age cap. Instead, we’ll look at each used vehicle financing deal on its own merits, without a pre-defined age formula. In the case of the emailer, his vehicle passed our internal criteria, and we felt comfortable financing it for five years, which we did. 

By their very nature, business vehicles usually age pretty fast, so the “seven years” formula is not really out of bounds. But as a small business lender, we feel it’s a better service to our customers to look at a used vehicle financing deal with a little more personal touch. Many times, a used vehicle three / four / five years old is still a very viable vehicle with many years of useful life left, and an excellent value for the buyer. And if that’s the case, we’re one of the only equipment financing companies that will consider financing it for five years.    

After all, like all of us getting older say, “age is just a number”. 

Business is all about providing good products and services that are of value to your customer base. But competition is always going to exist – everything you do, your competitor will try to do better (and vice-versa). It’s almost like a sibling rivalry.  

One day, a company is having a meeting, and the VP brings in a brochure for a piece of equipment that will allow them to offer a service they previously could not. For purposes of illustration, let’s say it’s a construction company getting a new hydraulic concrete pump that’s capable of higher reach than most others in the immediate area. And the company strongly feels the area is poised for growth… including vertical growth.

During the meeting, it’s decided that it’s a calculated and worthy risk – based on potential growth, offering this improved service locally will put this company squarely in the sights of developers moving into the area and constructing new facilities. They can cite their increased capabilities when they present a bid, which is always a nice caveat.

One issue – this is a bank account draining purchase. And you know what I’m going to say now, right? Fast equipment financing to the rescue.

The previous example is probably a bit over-simplified, but the general theme is incredibly valid. Companies venture into new areas of service (or product offerings) all the time. And quite often, it’s done stealthily – you want your competition to be as surprised as your market is delighted. Because if you get there first, you will enjoy a time where your competition must play catch-up (if they even can… sometimes they say “ok, let them have that market segment”).

And in the course of these meetings and strategic planning for growth, the most preferred way to get the equipment for any expansion is to finance it. This allows the new equipment to pay for itself over time – in fact, in most cases, assuming the company was right and the new offering is a hit, paying for itself is almost assured. 

Making a bold move to expand your offerings is part of business. And equipment financing is an important part of that.

But here we are in 2021, COVID restrictions are easing (if not gone), and many industries are returning to normal. While I still feel odd doing a “not hot” post, I can and will comment on a few industries. So here’s what’s hot in equipment financing in 2021.

1. Construction Equipment / Heavy Machinery

No surprise here, as the construction industry has been on the upswing for a few years now. New buildings, new homes, and even repurposed older buildings – they are all affecting an industry that doesn’t see too many slow times. We expect heavy equipment financing to be a very popular topic for the foreseeable future. 

2. Computers and Software

The pandemic sent everyone home, and changed the way a lot of businesses communicated. Software financing was always something we were strong in, and we’re seeing steady requests there as well. Especially for specialized industry-specific software suites, and communication-focused applications.  

3. Used Equipment of All Flavors

Preowned / used equipment financing (another thing we specialize in) is strong as well. There are several reasons for this. Companies hurt fiscally by the pandemic still need equipment, and used equipment is easier on the bottom line. Another reason (I feel) is the pandemic caused some older businesses with owners nearing retirement to close shop earlier than they originally planned, leading to a robust used equipment market. Lastly, the supply chain issues I’ve been writing about have caused many companies to consider the gently-used piece of equipment right in front of them and available right now.

So there you have it – three industries / financing types that are doing well here in 2021. But these aren’t the only ones – there are plenty of industries and companies that held serve during the pandemic, and are poised to grow. 

Hope your summer is going well!

I even mentioned financing used equipment, and also went a step further and added in that we finance private party deals (aka user to user, or in simpler terms, buying a used piece of equipment from anyone who isn’t an authorized or “official” dealer.)

And since I mentioned that, I want to mention this for anyone interested: before you talk to your lender about used equipment, do some homework. Because in the end, it’s Caveat Emptor. Here are some tips:

If possible, buy used equipment from a reputable dealer. 

Buying used equipment from a reputable dealer is akin to buying a used car from a well-known automobile dealership – they will likely stand behind the sale with two very important assurances. The obvious one being some type of warranty (even a short one); the not-so-obvious one is that a reputable dealer has probably conducted a UCC search looking for past liens. They also will likely attempt to make certain the equipment is able to be sold in the first place.  

Note that I am using words like “probably” and “likely” here. So be diligent and ask about these things, and even ask what happens if an old lien crops up – will your dealer stand behind the equipment? A reputable dealer should.

Buying from a reputable dealer (especially one that’s an “authorized reseller” or similar) can minimize most of the risk of buying used equipment. 

The rest of these tips are more for buying used equipment from private sellers and/or someone selling on consignment (like a broker). It still may be an excellent deal, but it also means the risk is increased. 

If at all possible, trace the paperwork to the original sale/owner. 

Having a clear paper trail all the way back to the original sale is something you should try and get, so a proper UCC search can be conducted. Now, in the case of long-lived equipment, tracing the sale back to the original owner may be impossible. But it definitely helps to have a paper trail back to the original sale from the manufacturer. And, of course, if you are buying equipment from the original owner, all the better. 

Make sure the equipment CAN be sold in the first place. 

This is trickier than it appears, and even if you have assurances, it can still be murky (which is why buying from a dealer or someone you implicitly trust is recommended). 

For example, if the seller of the equipment has an outstanding bank loan, it’s very likely the equipment is under a blanket lien, whether the seller is aware of this or not. And while it’s probable nobody will show up to halt the sale of the equipment, legally, the bank will still have claim to it. You will want this (and any other) lien cleared / released before buying, period. And again, this is why multiple previous owners can be problematic – if any of them had a bank loan or such, the equipment could have an old lien that nobody is aware of.  

We’ve also seen instances where partners (or spouses) had a falling out, and equipment was sold that should not have been. Again, even if you buy it and have a receipt, you may not be the legal owner. 

Don’t buy from a craigslist seller who only wants cash.

I’d like to think I don’t need to say that, but I do. Just don’t do it. And if the serial number is filed off… yea, run away. 

The biggest reason to be diligent when buying used equipment is in the end, you’re on the hook for it. Old liens that nobody knew about or an unauthorized sale could mean you lose the equipment, yet still owe your lender for it. And let’s be honest: any situation where you’d lose the equipment is already a messy one legally – good luck getting your money back.

The tips we’ve outlined above can help, but in the end, are not legal advice, and cannot guarantee anything. 

Used equipment is typically an excellent choice, and we love financing it. But be diligent and understand the possible pitfalls and risk.

And almost right away, my brain kicked into “and getting used equipment instead alleviates that” (since Section 179 eligible equipment can be new or used.)

So let’s talk about used equipment a little, specifically the advantages of used equipment over new (note: this assumes used equipment in decent shape and still useful in a technological sense.)

Used Equipment Is Less Expensive – You will always save money with used equipment over new. And in many cases, the used equipment is still quite relevant when compared to new. Sure, a used computer with a CRT monitor can be borderline useless due to rapid technological advances, but a used dump truck or bulldozer can typically do the same job as a new one can.

You Can Take Delivery of Used Equipment Right Away – This is a big benefit, as exemplified by my last post. Used equipment is already assembled and complete, and more importantly, it’s simply “there”, meaning you can take immediate delivery of almost any used equipment purchase. Anecdotally, I know someone who must wait several months for a new piece of equipment that needs a delayed chipset. And I know someone else for whom we financed a used skid steer last Friday, and he’s undoubtedly using it as I type.

You Can Finance Used Equipment – We will happily provide used equipment financing for most business equipment. Even private party used equipment purchases can be financed, which can be a big help to a lot of small businesses (tooting our horn here, because not everyone offers this.)

Used equipment has always been popular with small and mid-sized companies. And in 2021, the “we can use it immediately” aspect is another clear checkmark in the “advantages” column, because, assuming the equipment itself is eligible, your Section 179 deduction is safe. 

I talk about this every year, because I get really excited about it. We’re in that time of year where it’s actually profitable to finance equipment and take the Section 179 Deduction. Here’s what I mean:

You buy equipment and finance it with us. Let’s say it’s $50k. 

You take the full $50k as a Section 179 Deduction.

At a 35% tax rate, that $50k deduction translates into $17,500 saved on your taxes. These are actual dollars that stay in your account instead of going to the IRS. In other words, if you *didn’t* buy the equipment, you’d be paying the IRS $17,500 more.

So ok, you have an extra $17,500 in your account. And since you financed the equipment, you’re only making a payment or two for the rest of 2020. Let’s say those two payments total $2,400. If we subtract that from the $17,500, we get $15,100.

So the bottom line is this: in 2020, you A) got a new (or new to you) piece of equipment you needed, and B) have an extra $15k in your bank account for doing so. 

All of a sudden, 2020 is looking better and better, huh?

You can look at Section 179 a few ways. Had you paid cash for the equipment, you’ll still get the $17,500, but you laid out the full $50k. You can look at the $17,500 as a discount (meaning you really only paid $32,500 for the equipment).  

But in my example here, by financing the equipment, you actually have $15k MORE in your bank account than if you did nothing. And you know what? That $15k will probably cover all of next year’s payments too. And, of course, in all this time of the payments being covered, you are using the equipment to grow your business. 

When finance guys talk about “leverage”, they typically mean things like this.

So yes, you too can end 2020 on a great note. Get something you need. Finance it. Then take that sweet Section 179 Deduction (you can deduct up to $1,040,000 for 2020 – that’s a million, forty thousand.) Just make sure you have the equipment installed and in service by midnight, 12/31/2020.

Happy shopping!  

Or is it? 

Because right now, in July 2020, if you’re still doing business and surviving… well, there *is* some clarity in that. The big “shutdown” bomb went off this past spring, and you survived. You crawled out, dusted yourself off, and said “ok, what do we have to work with?” And whatever the answer is for you, you’re working with it. 

In other words, if you’re still here, and the numbers are black (or close to black), then you should feel reasonably comfortable that you are not only going to survive, but you are probably going to eventually thrive. Will things look different from a year ago? Absolutely – you may have a smaller workforce, it may be partially (or fully) at home, and you may have lost some customers (but perhaps gained others, maybe from places you never expected.)  

I’ve had conversations with plenty of small and medium businesses the past few months. Some were affected greatly. Some had an initial dip, then came back. Some even had unexpected surges. But the big takeaway I’ve had as the summer takes hold is businesses are still financing equipment. Like everyone else, we lost some customers, but gained others. 

Of course, certain industries got hammered (restaurants, bars, gyms, indoor mall retail stores), but others have really risen. Home exercise equipment. Bikes. Cleaning supplies and tools. Lots of desktop computers for home offices. Etc. 

But those are extremes that make the news. The truth is, most companies are somewhere in the middle. And where you are today should give you a little clarity on where you will be tomorrow. The businesses who survived the initial hit (and there are millions of you) are starting to recognize their resiliency. This is a powerful feeling, because it gives a little clarity in an unclear time. 

In the end, if you are “making it” NOW, making it tomorrow probably isn’t going to be an issue.

Dear Fletch,
I want to buy equipment from a local company that’s going out of business – can I get financed? And what should I look out for, if anything?
Keith H

This is a great question, because not only is it common, it’s also one that could prove perilous for the buyer. Here was my answer:

Dear Keith,

Yes, you can get financed. That said, it’s up to you to make sure a few things are in place.

The first thing you need to do is find out if the business you are buying the equipment from is the original owner. If they are, they likely have the original paperwork – get that. 

If they are not the original owner, then who did they buy it from, and are THEY the original owner? And is there paperwork? And so on. 

In other words, you need to be able to trace the equipment back to the manufacturer, and account for every owner. Here’s why:

Once you have all owners accounted for, you should make sure the equipment has no liens on it, from any of them. This is because liens on purchased equipment can be a serious pitfall. If you buy a piece of equipment that has any kind of lien on it – even one from years back and two owners ago that almost everyone has forgotten – the lienholder can legally claim (and take) that equipment. And no, you won’t get your money back. I’ve seen it happen. 

This is why I always stress to used equipment buyers that they should be sure of the seller. This is easy when you’re buying from an authorized dealer or large re-seller, because they usually do the detective work (search public records, etc. It’s a mess.) 

But in the case of buying used equipment privately, it’s buyer beware. Your lender might do some of this detective work for a fee, but even then, they can’t/won’t take responsibility. The liability is yours, and yours alone. 

My advice? If you’re not 100% sure of the seller and the equipment being lien-free, consider passing and going to a reputable used equipment dealer, or simply buy new. It’s a lot safer in situations where the seller can’t produce the invoice(s) from the original purchase.  

When lenders finance equipment for customers, there is a concept called PMSI. I want to spend this blog explaining what it is.

To start, PMSI is an acronym for “Purchase Money Security Interest”, and is very important for lenders, especially those who finance equipment purchases.

Essentially, what it means is the lender who pays for the equipment has first claim on it in a loan default / repossession scenario. For new equipment, as long as the financier pays the equipment vendor directly and files a UCC within 20 days, PMSI is automatically established. This is how most equipment financing deals work – the lender pays the manufacturer for the equipment directly, and the customer pays the lender back.  

This is very important in business. If you’ve read this blog over the years, you know I talk about bank loans and blanket liens quite often. The purpose of PMSI is to help protect lenders against future liens (such as blanket liens). So even if a bank throws a blanket lien on a company, the original lender still has first claim on the particular piece of equipment they funded (which is the way it should be.)

There are a few instances here, however, that sometimes need further time and work. The first one is the type of deal where a borrower actually pays the vendor for the equipment, and the lender immediately reimburses them. Ideally, PMSI works the same way, but the burden of proof shifts to the lender to say “we paid for that equipment indirectly”. This is usually not a problem assuming the equipment is new (all it needs is perhaps another form stating that the funds were used to buy the equipment, albeit indirectly, along with original paperwork and evidence of payment.)

But in the case of used equipment, it can get sticky. This is because previous lenders may have already established PMSI and/or may have blanket liens, and nobody can be 100% certain the piece of equipment is “clear” of liens. There is risk involved for the buyer because the buyer may not actually have clear title (that’s why most lenders simply will not loan on used equipment because the buyer can’t always prove clear title is being passed by the seller). This is easier when the seller of the equipment is the original owner, has an original bill of sale, has no liens, and the buyer is going to become the second owner. Or the equipment is a titled vehicle – that’s easier to trace former liens as well (note: I’m repeatedly using the word “easier” here, but the examples above are still more work than a straight “buy new” deal).

Lien issues can get really complicated when the equipment has had multiple owners, or the original bill of sale cannot be procured. This takes a lot of work (and increased costs) to try to figure out if the equipment is free of liens (and no one can be 100% sure). There are too many steps to go over here, but let’s simply say it can take days of waiting for answers, and be costly in the time spent.

UCC filings are more complicated than meets the eye. And 100% of the risk is ALWAYS the buyer’s burden (the lender is not responsible). Lenders may attempt to assist the buyer in order to better protect their loan with a first position on the collateral, but identifying and releasing any liens are the responsibility of the seller. Caveat emptor, buyer beware when it comes to used equipment.

Usually I do a “hot and not” post every year, and this year, I reported that just about everything was hot. But as I looked at some reports the other day, two things jumped out at me. The first is that construction equipment financing was robust. This usually happens in a good economy, as that’s when things get built.

But what really caught my eye was the fact that pre-owned construction equipment took a solid jump in 2018. It seems that there are plenty of construction firms leasing used construction equipment like backhoes, dump trucks, bulldozers, and other heavy equipment. Financing used construction machinery was always something firms did to save money, but it took such a jump recently that I asked myself “why?” I can guess at a few reasons:

There are Plenty of Good Pieces Out There. In “good times”, companies are quicker to replace machinery with newer, better models. This leaves a larger than usual inventory of gently used construction equipment.

Leasing / Financing Rates are Low. Rates are still low, despite a few small increases. Most experts feel more increases are imminent, so jump on this.

Machines Last Longer Today. There was a time when companies would shy away from taking out monthly payments on a used backhoe (for example), but today, they are built so well that even a used machine will outlive the payment term.

Financing used construction equipment makes sense for many construction firms. The numbers bear this out, and it looks to continue well into 2019.