Used Equipment Financing: How It Works and How to Qualify

If your business needs equipment, buying used can help lower the cost. But used equipment can still be expensive. Financing can help you spread out the cost and keep more cash available.

Many lenders offer used equipment financing for pre-owned equipment. Whether you qualify depends on your business, the equipment and the lender’s requirements.

Before you buy used equipment, learn how used equipment financing works. It also helps to know what lenders look for during credit approval and which option may fit your business.

Can you get financing for used equipment?

Many lenders offer equipment financing for used equipment. This can help businesses get the equipment they need without paying the full cost up front. Whether you qualify depends on your business, the equipment you want to buy and the lender’s requirements.

Used equipment often acts as collateral. That means the lender may use the equipment to help secure the loan. Requirements differ by lender.

The equipment’s condition can also affect your loan amount. If the pre-owned equipment is older or worn, you may qualify for less.

How does used equipment financing differ from new?

Used equipment financing works much like new equipment financing. The main difference is that lenders may review used equipment more closely. Older equipment can carry more risk.

The biggest factor is the equipment’s value as collateral. New equipment often has a higher value. It may also be easier for lenders to resell if a borrower does not repay the loan.

Used equipment may have more wear and tear. It may also have a shorter life and a less predictable resale value.

Lenders may look at:

• Equipment age
• Equipment condition
• Manufacturer or brand
• Maintenance records
• Expected remaining useful life
• Estimated market value

Loan terms for used equipment may be shorter than terms for new equipment. Down payment requirements may also vary by lender and equipment type.

Used equipment financing options

You can finance used equipment in several ways. Options may include equipment loans, equipment leasing, business lines of credit, working capital loans and SBA loans. The right choice depends on your equipment, budget and business needs.

Equipment Loans

Equipment loans are a common way to finance used equipment. The lender gives you funds to buy the equipment. You repay the loan over time.

These types of loans are typically secured loans, with the purchased equipment acting as collateral. Many equipment loans have fixed monthly payments. Terms vary by lender.

Equipment loans may be a good fit if you:

• Want to own the equipment
• Plan to use it for many years
• Need tractors, forklifts, commercial vehicles or other business equipment
• Prefer predictable monthly payments

Equipment Leasing

Equipment leasing lets you use equipment without buying it outright. Instead of owning the equipment, your business makes regular lease payments during the lease term.

Leasing options may be a good fit if you want lower up-front costs. They may also make sense if the equipment changes quickly or if you only need it for a short time.

At the end of the agreement, the business may have options to buy the equipment, renew the lease or return it, depending on the lease terms. Leasing options may help keep business cash flow while maintaining access to necessary equipment.

Lines of Credit and Working Capital Loans

Some businesses use a line of credit or working capital loan to buy used equipment. This can make sense when the purchase is part of a larger business expense.

Unlike equipment loans, these options may give you more flexibility in how you use the funds.

A business line of credit gives you ongoing access to funds. You can use it for equipment, repairs, installation or other business expenses.

You can also compare equipment loans, business term loans and other small business loan options. You can compare different lenders, including equipment financing companies, to find the best fit for your needs.

SBA Loans

SBA loans may be used to finance used equipment. The U.S. Small Business Administration guarantees part of certain loans made by participating lenders. That guarantee may help qualifying businesses get competitive rates and longer repayment terms.

SBA loans can help pay for many types of used equipment. This may include used machinery, vehicles and heavy equipment. These loans can be harder to qualify for. They also usually require more paperwork and underwriting.

What types of equipment can you finance?

Many types of used business equipment may be eligible for financing. Depending on the lender, you may be able to finance construction equipment, farm equipment, commercial vehicles, technology equipment, manufacturing machinery, restaurant equipment and other essentials.

Whether the equipment qualifies often depends on its condition, age, market value and expected useful life. Some lenders may place limits on older equipment.

Used equipment financing rates and terms

Used equipment financing rates and terms vary by lender. They also depend on your business and the equipment you want to buy. Lenders may offer fixed rates or variable rates, depending on the product.

Lenders may look at:

• Credit score
• Credit history
• Annual revenue
• Time in business
• Cash flow
• Current debt
• Equipment age and condition

Businesses with a stronger financial history may qualify for lower interest rates and longer repayment terms.

How to qualify for used equipment financing

You may qualify for used equipment financing if a lender determines your business meets its requirements. Many lenders consider your revenue, time in business, current debt, credit history and the value of the equipment, though requirements vary by lender and approval is not guaranteed.

Businesses with fair credit may still have financing options. Rates and terms may differ, and approval is not guaranteed.

Checking your business credit score before you apply can help you understand where you stand.

How to apply for used equipment financing

To apply for used equipment loans, you’ll usually choose the equipment, gather key details and compare offers. Requirements vary by lender, but complete and accurate information can help make the process easier.

1. Determine Your Equipment Needs

Start by deciding what equipment your business needs. Then decide whether buying new or used equipment makes more sense.

Think about how often you’ll use the equipment. Also consider your budget and whether you want to own or lease it.

2. Gather Equipment Information

Lenders need details about the equipment before they review your application. They may ask for things like the price and equipment age.

3. Prepare Financial Documents

Before approving your loan, lenders review your finances. They want to see if your business can repay the loan.

The documents they ask for vary by lender. You may need to provide documents including bank statements, tax returns, and revenue information.

4. Compare Financing Options

Compare different lenders and review their interest rates, repayment terms, fees, funding timelines and eligibility requirements. Do not compare offers based only on the monthly payment.

5. Complete the Application

Submit your application and any documents the lender requests. After reviewing your application, the lender may verify your information, review the equipment and decide if you qualify.

Should you finance new or used equipment?

The right choice depends on your budget, business needs and long-term goals. Used equipment may cost less. New equipment may offer newer technology, warranty coverage and a longer expected service life.

Used equipment may be a good fit if:

• Cost savings are a priority
• The equipment has been well maintained
• You want to reduce up-front costs
• You want to avoid the steepest period of depreciation

New equipment may make sense if:

• You need the latest technology
• Manufacturer warranties are important
• You plan to use the equipment for many years
• Maintenance costs are a concern

Used equipment can offer a good mix of cost and performance. This is especially true when the equipment is reliable and well maintained.

Tax benefits of financing used equipment

Financing used equipment may offer tax benefits for qualifying businesses. You may be able to deduct interest expenses and claim depreciation. Eligibility depends on current tax laws and IRS rules.

In some cases, equipment may qualify for deductions under Section 179. Speak to a tax professional to discuss your situation.

Deductions depend on current IRS rules, business use, when the equipment is placed in service and other eligibility rules. Tax rules also vary by business structure and equipment type.

Tax situations vary by business. Talk to a tax expert before buying equipment.

The Bottom Line

Used equipment financing can help qualified businesses buy equipment without paying the full cost up front. Options may include equipment loans, equipment leasing, SBA loans, business lines of credit or other working capital options.

Financing can also help you keep cash available for payroll, inventory and other day-to-day expenses.

The right option should fit your equipment needs, cash flow and long-term business goals.

Compare both new and used equipment before you decide. Understanding your options can help you make a better investment in your business.