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.