Equipment Appraisal Blog | Understanding Machinery Appraisals

How Equipment Appraisal Helps Document Bank Financing Collateral

Posted by Equipment Appraisal Services on Tue, Aug 22, 2017 @ 01:24 PM

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When you're trying to secure a business loan, many financial institutions require bank financing collateral. One option you have available to secure the financing you need is by offering your equipment as collateral. However, how do you document the value of your equipment? The best way is through an equipment appraisal. Here are some details about how it works.

How an Equipment Appraisal Helps You Document Bank Financing Collateral

When you're using your equipment as collateral in a bank loan, it's important that both you and the bank agree on how much it's worth. If the bank undervalues your equipment, it may tie up more equipment than is fair in your loan. If you default on that loan, you may lose more machinery that would be reasonably required to cover the loan. If you overvalue your equipment, you may feel that the bank is taking advantage of the situation when they're being reasonable about the situation.

But how do you and the financing company reach an agreement on how much the equipment is worth? Do you use average resale values in the area? What if the industry in your region is depressed, causing equipment values to be driven down? Do you settle for low equipment values when you've maintained your equipment in excellent condition over the years? Do you hope the bank doesn't notice the poor condition of that one or two pieces of equipment or that they never need to call in the loan and realize the problem? An equipment appraisal helps you avoid this issue by preparing a solid report on the calculated value.

But when you have an appraisal report prepared by a certified equipment appraiser, you get much more than a report that satisfies everyone in regards to your equipment values. Is this round of financing just the first step in a larger expansion? What if your equipment fails before you get to that point? When should you replace the equipment as part of the entire process? An appraisal report will look at the condition of the equipment. Because an equipment appraiser spends significant time studying equipment on a regular basis, they have a good feel for how long the equipment is expected to last, providing you with an estimate of the estimated useful lifespan. This allows you to plan for equipment replacement as part of your larger expansion or upgrades.

What if you have a fire, vandalism or theft of your equipment? If the amount of collateral and the insurance settlement don't match up, you may find yourself having problems down the road. When you use a certified equipment appraiser, the report they provide is developed using standardized appraisal methodologies. These calculations have been tested in court, by insurance companies, by tax agencies and in financial circles, so they stand up well to heavy scrutiny. This means they'll work well for both securing the financing you need as well as providing reliable documentation of your equipment's value for other purposes.

When you get an equipment appraisal to document your bank financing collateral values, you can prove what your machinery is actually worth. However, to ensure that your appraisal is accepted at face value, you'll want to be sure that you use a certified equipment appraiser. Why? The process of becoming certified ensures that the appraiser is using standardized methodologies that will stand up well to scrutiny in legal, financial and insurance circles.

Tags: bank financing collateral

Understanding Orderly Liquidation Value in your Equipment

Posted by Equipment Appraisal Services on Tue, Apr 04, 2017 @ 03:21 PM

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Understanding orderly liquidation value in your equipment is just something most business owners never consider. Why? In general, liquidation is considered by most business owners to be a sign of failure, such as a bankruptcy liquidation. But there are a number of circumstances in which you may need to have an equipment appraiser perform a liquidation machinery valuation that have nothing to do with financial trouble in your business. In this post, we'll take a look at which circumstances may call for orderly liquidation equipment values and why this type of appraisal is used in those situations.

How businesses work: understanding orderly liquidation value in your equipment

What is orderly liquidation value?

Orderly liquidation value falls between forced liquidation value and fair market value in terms of monetary compensation. It's calculated under the assumption that the piece of equipment or machinery must be sold, but that there is a longer period of time to do so, such as a few months. You would receive less than you would at fair market value, but receive more than you would under a forced liquidation.

How is it different than fair market value?

Fair market value assumes that the equipment would fall under normal exposure in the market place before being sold for what is perceived as a fair price to both the buyer and seller. There's no serious time limit on how long the equipment would be offered for sale, so it would be sold for a higher price than in an orderly liquidation scenario.

How can orderly liquidation equipment values impact my business?

When you're getting ready to sell a business, knowing the orderly liquidation values allows you to gain quick cash to help with financing or to provide an additional buffer during the sale process if things don't go as smoothly as you'd like. When you're purchasing a business, knowing these values allows you to relatively quickly sell some of the excess equipment to pay down debts or meet other needs during the process. 

In what kind of situations is orderly liquidation value used?

In many circumstances, people involved in a business need to receive money relatively quickly for a number of reasons, but are willing to wait a reasonable amount of time to ensure they're getting more from the sale of that asset than they would through a forced liquidation. This can include the breakup of a partnership, the dissolution of a marriage where both individuals were involved in the business, the sale of excess equipment in anticipation of closing a business sale, an unexpected death of a business partner or similar scenarios. By providing additional time, the party that is leaving the business or their heirs will then receive money for the equipment that is sold without having to either lose out on the machine's value through a quick sale or wait a long period of time for it to sell using conventional methods and fair market value.  Banks also often lend based on Orderly Liquidation Value.

As you can see, there are many different situations where understanding orderly liquidation value in your equipment is important to your bottom line. When you need equipment appraisals, it's important to work with an equipment appraiser who is certified, because the certification training process ensures they know which standardized methodologies to use in which situations. Why is that important? Standardized methodologies are developed to stand up to strong scrutiny, including legal, insurance, financial and tax circles. Getting a quality equipment appraisal is vital to your bottom line.

Tags: bank financing collateral, selling equipment, orderly liquidation value

How does Bank Financing Collateral Really Work?

Posted by Equipment Appraisal Services on Tue, Jan 03, 2017 @ 03:02 PM

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When you're expanding or improving your business, it's important to understand the terms of your financing agreement. With changes in the banking industry since the 2008 recession and bailouts, many businesses are looking at bank financing collateral as a possible option to consider. But how does it really work and will it cause problems down the road for your company? In this post, we'll take a solid look at how equipment appraisals should be a part of your toolkit when approaching bank financing involving collateral.

How does Bank Financing Collateral Really Work?

Banks require collateral as an insurance policy, so that they can regain any losses from a loan default by selling the collateral to make up the balance due. Though immovable assets are typically thought of as assets such as real estate, large equipment that is difficult to remove may also be considered this type of asset. Smaller pieces of equipment or equipment that is more easily moved is considered a movable asset. The bank may require that you provide a high amount or all of these assets as collateral to secure a loan. But at the same time, you don't want to risk any more of your equipment, often the very source of your income, than is absolutely necessary. What can you do to both protect your interests in your business while providing the bank with the financing it needs? One possibility is through an equipment appraisal.

Equipment appraisals are reports prepared that calculate the value of a piece or a lot of machinery. If they're prepared by a certified equipment appraiser, the report will stand up to much higher levels of scrutiny than a report or general quote developed by a dealership or other party. Why? Because a certified appraiser is taught specific, standardized methodologies to calculate the machine's value, a report prepared by them is considered more accurate and reliable than other methods of determining equipment value. These methodologies have been scrutinized in legal proceedings, financial circles, insurance claims and tax agencies and have evolved into a nationally-recognized set of standards - the Uniform Standards of Professional Appraisal Practice (USPAP). 

When you have an accurate valuation performed, you have a solid figure you can take to the bank when negotiating the terms of your financing. Because the report has been provided by a certified appraiser, the bank officers know that it's an accurate representation of your equipment's worth. That means that you can choose which piece of equipment you're willing to put into the agreement as collateral and which ones to protect from risk.  An accredited appraiser through organizations like the American Society of Appraisers (ASA) with the Machinery & Technical Specialties (MTS) designation must provide unbiased appraisal reports that all parties can rely on.

As you can see, using machinery valuation as part of your process for agreeing to bank financing collateral requirements can help ensure that you're only putting as much of your business assets as are necessary. Using a certified equipment appraiser helps ensure that not only are you getting accurate equipment values, but that the valuation report with stand up to strict scrutiny by your financial institution.

 

Tags: bank financing collateral, bank loan, used equipment, sba loan

How to Secure Great Bank Financing Using Equipment Appraisals

Posted by Equipment Appraisal Services on Tue, Jun 14, 2016 @ 11:00 PM

Whether you're just starting a business with equipment from a serious hobby or are getting ready to make a significant expansion, securing bank financing that meets your business needs is vital to its success. But what about when you can't be approved for financing without collateral or can only qualify for a interest rate that is too high without proof of existing assets? In this post, we'll help you learn how to get better financing without breaking the bank.

How to Secure Great Bank Financing Using Equipment Appraisals

  • An equipment appraisal helps you know what your equipment is worth. Has your bank asked for collateral for your loan? The bank officer may be more amenable to accepting your equipment as collateral if they know the verified value of your machinery. By being able to document your machinery's value, you may be able to get better terms for your loan, such as a better interest rate, a higher loan amount or better repayment terms.
  • A machine appraisal from a certified equipment appraiser will be treated by the bank with more credibility than they would an advertisement online, your cousin Joe's opinion or similar, less binding documentation. This also means that they can provide a loan closer to the full value of the equipment when the equipment is used as collateral, because they know they'll get their money back if you aren't able to pay them what is owed on the loan.
  • How much your machinery is worth can vary greatly based on the purpose of the appraisal, the market and similar concerns. In some situations, the type of appraisal that is performed is mandated by law, such as in a divorce or partnership dissolution. When your market is booming, equipment may be hard to find and therefore will command a higher price than when it has gone through a bust cycle and the equipment is plentiful and cheap. Is your equipment usable in other industries? Does it require extensive retooling to be used by another business? 
  • Your machinery's value can also vary strongly based on the condition it's in at the time of appraisal. Has the equipment been properly maintained and repaired when necessary? It will have a longer lifespan and higher value if so. Does it has any after market kits or options that may have not been approved by the manufacturer? These may cause excess wear and tear lowering the value of the equipment.
  • A machine appraiser will estimate the expected useful lifespan of your equipment when asked. If you have a piece of equipment that is expected to have another 20 years of service but the bank has previously offered you only a 5 year term, having documentation of the expected lifespan may give the bank officer the opportunity to potentially extend the repayment period out to a more reasonable length of time.

By having a qualified equipment appraiser determine your machinery valuation, you can provide your financial institution with documentation of your equipment values, helping ensure your bank financing will come through.

Tags: bank financing collateral, bank loan

16 Reasons for Equipment Appraisals We See Every Day

Posted by Equipment Appraisal Services on Tue, Mar 01, 2016 @ 02:30 PM

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When you're busy running a business, it's easy to let equipment appraisals fall by the wayside. But there are times when it's really important to make sure you know exactly what your equipment is worth, and some of them may surprise you. Here are some of the most common reasons we see every day for machinery appraisals.

16 Reasons for Equipment Appraisals We See Every Day

  1. Allocation of Purchase Price: When someone buys a business, they need to know how much of the purchase price went towards the equipment, so they can set up asset records, schedules for depreciation or other records needed.
  2. Bankruptcy: Do you know what kind of valuation you need in a bankruptcy? There are many different valuations used depending on the circumstances and a good equipment appraiser will know which one to use.
  3. Condemnation: When eminent domain is invoked for a property, fair market value must be established for any equipment that is on site. A qualified equipment appraiser will know what type of fair market value should be used in your particular circumstances.
  4. Dissolution of Corporation: When business planning happens, it's easy to ignore what happens if the company is dissolved. An equipment valuation ensures the shareholders get a fair share of the business value.
  5. Dissolution of Partnership: Whether it's retirement, redirecting or just calling it quits, the dissolution of a partnership can be difficult enough before arguing over who gets what.
  6. Dissolution of Marriage: Divorce is almost always messy. Most of the time, it's easier to have a third party determine the value of a business so a fair and equitable price can be determined.
  7. Getting Financing: When it comes to bank financing for the potential purchase of equipment, you need to prove what your business is worth to get a line of credit, and an equipment appraisal will go a long way towards putting that in place.
  8. Insurance Purposes: When your business is paying for insurance, you want to make sure all your equipment is covered for its actual value. If it isn't, you may find yourself on the short end of the stick during an insurance loss.
  9. Loss Settlement: Speaking of insurance, when you do have a loss, can you prove what your equipment was worth? Having documentation available to prove the equipment's value goes a long way in an insurance loss settlement.
  10. Leasing Equipment: When you're leasing equipment there may be a clause that you can buy the equipment at the end.  You will often need to find its value at this point to make a smart decision.
  11. Management Considerations: When should you sell that old equipment and upgrade your production? Is it worth repairing that machine again or is it time to chuck it? Knowing your machinery's value helps with important decisions.
  12. Import and Export Documentation: How do you prove the value of that new machinery from mainland China? An equipment appraisal helps prove what your equipment is actually worth, especially when customs is suspicious of the label with the $5 value on it that your supplier so helpfully wrote down.
  13. Taxation - Income Tax: What do you do when your machinery is used in a high-wear environment and the IRS depreciation tables provide too high a value? An appraisal gives you documentation of your equipment's actual value.
  14. Taxation - Property Tax: Personal property taxes can be a pain, but a high assessment is a seriously unpleasant surprise. A certified machinery valuation helps you fight an inaccurate assessment.
  15. Taxation - Estate and Gift Taxes: When you pass your business on to the next generation, have you accounted for gift or estate taxes? Documenting equipment value helps ensure your legacy won't go to Uncle Sam.
  16. Charitable Contributions: When it's time to make donations, how do you document the value of the equipment you've donated? Documentation of donations is required by the IRS for tangible asset donations that exceed $5,000.

As mentioned previously, all these reasons are ones we see commonly in our business. Have you had the opportunity to have a machinery valuation performed by a qualified equipment appraiser?

Tags: bank financing collateral, allocation of assets, reasons for equipment appraisals

4 Ways an Equipment Appraisal Provides Bank Financing Collateral

Posted by Equipment Appraisal Services on Fri, Jul 31, 2015 @ 09:30 AM

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Whether you're considering opening a new business, expanding your operation or dealing with a temporary cash flow issue in your business, qualifying for bank financing is a big part of the picture to your business' financial success. By having current equipment values for your business machinery, you can help document your business' assets and back up the figures on your balance sheet. Getting equipment appraisals on used machinery you need to expand your operation proves the equipment value and amount needed for your financing without a lot of run-around and repeated effort. Here are 4 ways having a machinery valuation completed before you start the process can ensure you have the bank financing collateral you need for your business loan.

  1. A machine appraisal provides verification of your business' existing assets. If you have existing equipment that has been paid off or is in the process of being paid off, the bank can use the information provided by a machine appraiser to determine how much equity you have in your existing equipment. It also shows the current value of the machinery you already have in use instead of relying on a pre-determined depreciation schedule that may not show an accurate picture of your business' financial health.
  2. A machinery and equipment appraisal proves the value of the machinery you're purchasing. When you're buying used equipment, it can be difficult to find a single definitive source of machinery value that covers your exact equipment and any modifications that have been made to it. An equipment appraiser makes their living studying equipment values for bank financing collateral, so having a machinery appraisal or valuation completed helps provide a solid number for the bank to base its decision.
  3. An equipment valuation can provide needed information to your insurance company so that your policy can be updated to cover your equipment acquisition. A bank wants to know that if you have a warehouse fire, the machinery they're financing has been protected. Equipment appraisers provide reports with specific information needed by your insurance company to fully cover the equipment you're purchasing.
  4. It's necessary in many cases for securing an Small Business Administration loan. With the economy still recovering, many businesses are still recovering their credit history, making them too high a credit risk for many bank financing collateral situations. Because it's much easier to pick up a loan that the SBA is backing, it's important to ensure you can meet the SBA's requirements for a small business loan whether you're just starting out, expanding your company or to help with a temporary cash flow situation.

By keeping these circumstances in mind, having a machinery and equipment appraisal performed by a qualified machinery appraiser will make your bank financing collateral process go much more smoothly. Make sure you use a certified equipment appraiser using the Uniform Standards of Professional Appraisal Practice (USPAP) and is a member of the American Society of Appraisers (ASA) to ensure that your financial institution will accept their equipment appraisal for your loan.

Tags: Equipment Appraisal, bank financing collateral