Share
If you are buying used equipment, the expected life of that piece of equipment is shorter than that of the new equipment, thus, choose a shorter period of time to pay it off. The payments will be higher but you need to try to match the remaining life of the machine to its earning power. A used piece will not last as long as a new purchase so use the shorter loan period.
For example, if you buy a piece of equipment that is used, choose a three-year life (36 months) to pay it off. If it is new equipment, choose a five-year life (60 months). You do not want the equipment to become worthless before you get to the end of the loan. You should also understand that the bank is far more assured when you choose a shorter period because they have collateral in a used versus new piece of equipment. They will not be excited to finance used equipment without raising the interest rate to compensate for the increased risk your used piece of equipment poses.
Lower payments may be bad for your company. Do not fall for the lower payment argument. If the sales person who is selling the equipment uses this argument, tell him not to waste your time. Tell him to get back with a better price. It is easy to be persuaded to choose a low payment loan for an equipment purchase, but remember that this is most likely very shortsighted and unhealthy for your business.
Pay off the loan in a reasonable time frame. Your firm needs to pay the equipment off in a reasonable time frame. Five years may be the right number. Ten years is probably not the right number in a high technology dependent industry. You are paying off worthless equipment at the end of ten years when you should be investing in the newest equipment in a changing market.
When shopping, look at new and used and look at the price differential. Tell your salesman either get a better price or get an alternative piece of equipment in the market. If he cannot get the best price for the best piece of equipment, tell him you are also in the market for a good used piece. He fights with used equipment sellers in the market all of the time, so tell him to go do some research and find a deal for you. You should also go find a used machinery dealer’s name while waiting for this guy’s option.
Get a competitive bid outside the sales region. When you run into problems with sales representatives, you probably need to get a competing bid. There is normally more than one agent for a machinery company in the country so call them up and ask for a competing bid.
Sometimes calling the manufacturer is worth the call. If your dealer does not respond well, call the company direct. That will normally take care of the problem in the event their company is about to sell a $1.0M piece of equipment and they have a potential buyer that does not trust their chosen representative. Companies do not let poor sales people get in between their equipment and a potential buyer.
