Equipment Appraisal Blog | Understanding Machinery Appraisals

Whether you are acquiring a new business, expanding your capital asset requirements or restructuring debt, searching for available financing is a critical part of the process. In any of  these cases, if your operation includes machinery & equipment, obtaining a current asset valuation will be an important step. An equipment appraisal will help document your business' assets, adjust the depreciated values on your balance sheet to realistic market data and assist potential lenders in getting your credit approved.

Here are some other benefits of having a current machinery valuation completed for financial service providers and equity investors:

An equipment appraisal provides verification of your company s existing assets. If you have equipment with existing loans & liens associated with them, the lender/investor can use the information provided in the appraisal to determine how much equity you may or may not have accrued. The appraisal also estimates the current market value of the machinery instead of relying on an internal pre-determined depreciation schedule that likely will not show an accurate picture of your business' financial health.

The appraisal supports the value of the machinery you are purchasing or refinancing. When you are considering used equipment, it can be difficult to find an objective source to assist in understanding the marketplace and how it reflects back on your business . An equipment appraiser is an unbiased third  party, with no stake in the larger transaction, and therefore, is relied upon as a credible service provider by all lending institutions.

An equipment valuation can provide this same information to related third parties such as insurance agents and property tax assessors so that you're receiving adequate coverage and not overpaying your share of taxes. This also assists the lending institutions who want to be confident they are covered in the event of any casualty loss.

Financial institutions also work with government lenders such as the Small Business Administration, who have their own set of requirements for approving loans. If you qualify for these beneficial programs, it is important to ensure you can meet these requirements for a small business loan, whether you are 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 financing collateral review process go much more smoothly. Make sure the equipment appraiser is a member of the American Society of Appraisers and is current with the Uniform Standards of Professional Appraisal Practice (USPAP), which requires certified updates every two years.

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.

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.