Equipment Appraisal Blog | Understanding Machinery Appraisals

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