You need an additional piece of equipment for your business and you think you want to purchase used equipment. Now what do you do?
- Evaluate your business needs
- Consider the potential risks
- Determine from whom you will buy
- Obtain an equipment inspection
- Arrange logistics
- Look out for red flags
- Coordinate payment
Evaluate Your business needs
You ultimately need to make any equipment purchase with your specific needs in mind. When you assess the need to acquire a piece of equipment, consider the timeframe of the need and ongoing capacity utilization.
Why do you need to purchase equipment?
Some common reasons include continuous, steady growth of business, acquisition of a new customer or project, and replacement of aging equipment.
What’s the intended use of the equipment?
How you plan to use the equipment is a big factor to consider when deciding to buy used vs. new. It is important to also ask yourself the question, “How much up time will I have before I have downtime?” For example, if you need an aggregate machine for a 2-month contract, it would be better to invest in an older machine at a lower cost than purchasing new and using it immediately under intense conditions (i.e., crushing rock for 8 hours a day).
How long do you need the equipment?
Make sure you buy a piece of equipment that is going to help make you profitable in the long run. There is significant risk involved if you choose to buy used equipment that either hasn’t been maintained or is too old to function at maximum capacity. It is very important to estimate the useful life of the equipment to ensure it is a good investment for your business long term.
What else do you need to get the job done?
Occasionally, you may need special configurations or aftermarket parts to get the job done. These types of requirements might be hard to obtain for a used piece. The customization you get when you order a new piece from a dealer may be what you ultimately need.
When it’s time to purchase equipment for your business, ask yourself the above questions. If you take time to evaluate these issues, you will be better prepared for the search and more likely to find the equipment you want.
consider the potential risks
Buying used equipment can be a great way to obtain additional equipment at reasonable prices, and while it’s often easy to find available used equipment, there are some factors you should consider before making that purchase.
The used equipment buying process can be a daunting task. It requires the purchaser to put in significant effort to ensure you are making the right decision for your business. In addition to locating the right piece of equipment for your needs you need to inspect the equipment, determine how it has been used, and how well it has been maintained.
Limited or No Warranty
Especially if the piece of equipment is older, there may not be a warranty transferred to you upon purchase. Warranties help bring peace of mind after the transaction. Ask the seller if there are warranty options available for purchase along with the equipment.
Some of the money you save when purchasing used equipment will be spent on maintenance. As a machine ages, the more maintenance will be required to keep it operational. Repairs, and downtime, are also more likely, depending on the age and wear and tear on the machine.
Technology in equipment is always changing and every year new features are being added to increase performance and efficiency. With a used piece of equipment, you may be missing out on new technological features that could help improve performance, extend the life of the equipment and prevent downtime.
Safety & Liability Concerns
It is imperative that as a business owner you protect the most important asset you have – your workers. Thoroughly inspect used equipment so you can ensure that you and your workers will be able to operate it safely.
Less Profit and/or Lost Business
Delays and downtime can have adverse effects if they cause project deadlines to push back or delay progress for your clients. Likely, these will result in consequences that can negatively affect your cash flow and profits. This can be detrimental to your bottom line.
Determine from Whom You Will Buy
The four main outlets are auctions, dealers, online marketplaces, and private parties.
Make sure the seller is reliable and trustworthy. Ask for references, consult with peers and/or local dealers, and if possible, meet with the seller in person. Also, be sure the seller can transfer ownership to you “free and clear” (no outstanding debts or liens). A skilled used equipment finance partner can help you with this aspect of the research.
Equipment auctions are great places to research and purchase used equipment. Selection is normally large and they usually have a variety of equipment types and brands. Some of the larger auction houses have multiple locations and offer online bidding so you can buy from nearly anywhere. They also typically offer title searches, maintenance records, warranties, and can arrange transportation once purchased.
Many dealers have used equipment from trade-ins or previously rented machines, however selection will be limited to what they have in stock. Benefits of purchasing from a dealer include the ability to personally inspect the equipment (if the dealer is located nearby), negotiate price, and the availability of service and support after the sale. You may also be able to obtain a warranty for the equipment.
In online marketplaces you can find a wide variety of equipment and can compare brands, features and pricing. Be certain the marketplace has a good reputation and strong security features, including dispute resolution services.
Private parties are individuals or non-dealer businesses that are looking to sell existing equipment. Sometimes they are looking to upgrade and didn’t get the trade-in price they wanted, or they simply want to downsize their fleet. When purchasing from a private party it’s critical to perform a thorough inspection, conduct pricing research, and ensure the seller has free and clear title to the equipment being sold.
Obtain an Inspection
When buying a piece of used equipment, it is ALWAYS a good idea to have the piece inspected by a knowledgeable equipment expert or mechanic before investing your company’s capital into the machine. Missed damage, needed repairs, and even impending machine failure can be catastrophic for your business. These things pose a threat if you are not careful and thorough during the inspection process. Thankfully, there are many services available to help you buy with confidence.
For transportation equipment, you can hire a third-party inspection service located near the piece of equipment to come and conduct a thorough investigation (for example, National Inspection, DEKRA). It is important that the individual has an engine scanner and have no relationship with the equipment or dealer.
When the inspection report comes back, there are always going to be things that come up. It is important to be realistic with the information you are given. Establish what you are willing to let slide (i.e., cosmetic blemishes, tire tread) and understand that larger issues may have adverse consequences (i.e., downtime or loss of business).
Once you understand where you can source used equipment, do some research on logistics and transportation, as you will need to get it to your facility or jobsite. Establish a realistic radius that you feel comfortable with for transporting the piece of equipment or for hiring a third-party to handle the logistics. Timing may be an issue as transportation of equipment may require permitting. Understand the availability of equipment in your region and plan accordingly if you must broaden your search. There are a variety of resources available should you hire a third-party logistics company.
If the equipment is drivable, such as a tractor-trailer, you can hire a driveaway service company to pick up the equipment and deliver it to your business.
If your equipment is not drivable, you can hire a company to load the equipment and deliver it to you. Depending on the size of the equipment, you may need special permits such as wide load, leading and trailing cars, etc. This can become expensive if the distance between you and the equipment is significant.
Look Out for Red Flags
One of the most important things to be aware of when searching for used equipment is the presence of scammers and disreputable dealers. It is imperative to be aware of some of the “red flags” that you may come across while vetting your sellers.
Cheaper than Market Value
Understand the market price for the equipment in which you are interested. If a piece is listed for a significantly lower price than the going market value, you may need to do additional research to identify the reason for the disparity. The price may be too good to be true.
Lack of Background History
Reputable sources should be able to provide you with background information like ownership and maintenance records or location history. Make sure you arrange for a lien search to ensure that the title is “free and clear.” If you are financing the equipment a knowledgeable lender will be able to help protect your interests.
No Maintenance Records
You keep maintenance records on your equipment, correct? So, a reliable seller should have maintenance records for the life of the equipment and any major repairs should have proper paperwork from a reputable dealer or repair shop. This is especially important if the piece has received any major repairs such as, engine replacement. You’ll want to make sure that these repairs were done by skilled professionals.
Because word of any bad activity tends to travel fast in the used equipment market, you can refer to online reviews to see what others in your industry are saying. Additionally, you can look up the seller on the Better Business Bureau (BBB) website.
Once you’ve selected the equipment and performed the due diligence to ensure it meets your needs and specifications, and passes inspection, you need to pay for it.
Basically, you have two options – pay cash, or finance.
If you have the cash reserves, paying cash will cost you less in the long run, because you won’t have any interest to pay. However, if paying cash will deplete your cash reserves, you might be better served holding the cash in case of emergencies or future opportunities.
Finance the Purchase
Financing your used equipment purchase helps you conserve cash, but you should explore your financing options. Not all lenders are willing to finance used equipment.
CCG does finance used equipment, and we offer flexible financing options. Regardless of whether you purchase from a dealer, an auction house, or a private party, we can help. Additionally, we can often pre-approve you for financing to help simply and speed up the purchase process.