FINANCE BLOG

Whether you operate a trucking company, a construction company, a tree care company, or a waste hauling company, the lifeblood of operations are your employees and your equipment. You can't generate revenue without either of them.

And when it comes to growing your business, growth often depends on your ability to add equipment to your fleet. As you are searching for the right machine, your options can be plentiful. You can buy shiny new equipment or you can purchase used equipment. Many companies opt for used equipment because of the cost savings when compared to new. This blog post dives into the pros and cons of purchasing used equipment, thus arming you with information to make the best decision for your business.

Advantages of Buying Used Equipment

1. Cost savings

The most apparent advantage of purchasing used equipment is the cost. Typically, used equipment is considerably less expensive than buying new, so there are immediate savings to be realized. Additionally, the lower price means you pay less in sales tax.

2. Immediate availability

New equipment can often have long lead times, especially during times of strong economic or industrial activity. Used equipment is generally available for use immediately and can therefore be put into service quickly. This is especially helpful if you are operating on a short lead time or need a replacement due to an equipment breakdown or failure.

3. Depreciation

Depreciation reduces the book value of equipment and all equipment depreciates over time, but the depreciation curve is steeper earlier in the life of the asset. Buying used equipment can help you avoid the steepest, most costly depreciation. This can be advantageous as the resale value of equipment tends to stabilize over time.

Additionally, like new machines, used equipment also qualifies for Section 179 accelerated depreciation, and Bonus depreciation, allowing you to reduce your taxable income.

4. Tested Reliability

Used equipment has been put to the test, so to speak, and you often find ratings, reviews, and performance data on specific brands, makes, and models. This can help you make informed decisions about the specific machine you want as you rely on the feedback of people who have previously used a certain type of equipment.

These types of reviews are very limited for brand-new equipment models so if you are looking for sustained reliability, an older, tested model may work best.

5. Reduced Insurance Rates

Because the purchase price and therefore replacement price of the equipment is lower than buying new, the cost to insure the equipment is typically lower.

6. Sustainability

While it’s difficult to quantify, buying used equipment does help divert waste from landfills, and eliminates the cost of raw materials and energy required to produce a new machine.

Disadvantages of Buying Used Equipment

1. Possible hidden issues resulting in repair costs

While you can research the brand, make, and model, and purchase based on positive user feedback, used equipment does come with a risk of unforeseen performance issues. These issues can be related to the engine or motors, the electrical systems, or any other moving or critical component. Pre-purchase inspections can help identify potential issues but can’t guarantee there won’t be any problems.

2. Limited Warranty

Depending on the age of the equipment, the machine may have outlived its initial manufacturer's warranty. This isn't typically an issue until you run into a mechanical failure and are left with repair bills and downtime.

A couple of ways you can mitigate this include: 1) ask the seller if they have an aftermarket warranty available, and 2) ask the seller for the complete maintenance and repair records and review them before finalizing the sale.

Some dealers that sell used equipment offer aftermarket warranties. They don't typically cover everything but can be useful to help defray some repair costs. Most private sellers won't have access to aftermarket warranties.

Maintenance and repair records can indicate how well the equipment was cared for and what issues it had in the past. Well-cared-for machines are less likely to break down and the maintenance information may give you a better feeling about the purchase.

3. Outdated technology

The older the machine, the more outdated the technology. This can include efficiency and safety features, as well as technology such as electronics and telematics. If your job or business performance relies on having the latest and greatest in technology, your used equipment options may be limited.

4. Reduced lifespan compared to buying new

For obvious reasons, a new machine will have a longer lifespan than a used machine, however, the useable life depends on how hard and how much the machine was operated or run, and how well it was cared for. Age and miles or hours can help determine how much longer the equipment might be operational.

5. Limitations to customization

When purchasing a new piece of equipment you can often specify certain features, options, accessories, or attachments to enhance the usefulness of the equipment and that align with your business needs. When purchasing used equipment you are limited to the equipment that is currently on the market and you may not be able to find a machine that meets all your customization requirements.

6. Higher interest rates and shorter terms on loans

Most lenders have slightly higher interest rates and shorter term lengths when they finance used equipment. This is because there are additional risks associated with used equipment (reduced lifespan, reduced or no warranties, for example).

You’ve compared the pros and cons and have decided to purchase used equipment. Now you need to determine where to get the equipment.

Where should you look for used equipment?

Equipment Dealers

Whether you are buying trucks, trailers, construction equipment, or other heavy equipment, dealers often have used equipment in their inventory. This can be equipment that was previously rented or equipment that another buyer traded in when they purchased a new machine. If the equipment was rental equipment the dealer should have good maintenance records and a good understanding of how the equipment was previously used. If the equipment was taken by the dealer in trade, they most likely won't have as detailed information.

Most often selection of used equipment at a dealer is limited to what they have in stock. Some larger dealers with multiple locations have access to their other branches' stock, so the selection might be larger than what is currently on the dealer's lot.

Some dealers, in addition to letting you inspect the equipment, may allow you to test drive or demo the equipment, allowing you an additional inspection opportunity and allowing you to test out the optional features.

Most dealers also offer after-sale service and support. This is no different than if you had purchased new equipment from them and you have access to the same brand of parts and service technician expertise.

Auction Houses

Auction houses obtain their equipment from various sources and often have hundreds of pieces for sale during a given auction. Additionally, if you are attending the auction in person, you will have an opportunity to inspect the equipment.

Auctions also allow you the opportunity to compare between brands. An individual dealer will typically only have the main brand they sell, which can make it difficult to draw direct comparisons. Of course, with the internet, you can conduct a lot of research online to pre-determine which brand makes the most sense for you.

One thing to keep in mind is that because of the bidding process, pricing can escalate quickly, so have a budget or top price in mind before you get to the auction. This will keep you from getting caught up in the moment and overbidding or overpaying.

Private sellers

Finding the exact machine you want can be difficult, as equipment is limited to the single pieces individual sellers have available.

You can find private sellers through various online resources - online clearinghouses, Craigslist, eBay, etc. One difficulty is finding the perfect machine, and having it located near you. Equipment that is located hundreds or thousands of miles away adds transportation costs to potential purchases and reduces your opportunity to inspect or test drive the machine.

Some lenders are hesitant to finance transactions between two private entities. Ensure the current owner has free and clear ownership or title to the equipment being sold. Another consideration is after the sale. Once the transaction is complete, the seller has been paid and you've taken possession, should there be any problems or issues with the equipment, you don't have much recourse available. If you've purchased from a dealer or auction house, it's easy to get in touch with them to discuss any problems.

Careful consideration should be taken when you purchase used equipment. It can be quite advantageous, especially on the upfront purchase price, but you must consider the long-term costs as well. Oftentimes maintenance and repair costs are required earlier in the ownership cycle than if you had purchased new equipment. Ensuring you have money available to handle at least general maintenance can help offset any unforeseen issues.

To help protect yourself and your business, do the following:

• Be sure you are purchasing from a reliable seller.
• Ask for evidence of clear, transferable title or ownership, especially when buying from a private seller.
• Conduct a thorough equipment inspection - if you find any issues, should you choose to accept the equipment with those issues, ask for price concessions.
• Ensure that you get any maintenance and repair records.
• Inquire about an aftermarket warranty.
• Make sure you also purchase any accessories, options, or attachments you might need.
• After purchase, perform proper and timely maintenance and inspections on the equipment. This can help you identify any issues earlier when they are most likely to be less costly to repair.

Buying used equipment does come with a few more risks than buying new equipment. But many of the pros can offset some of those risks, especially when the cost of used equipment is considerably lower than new equipment.

When you are ready to make an equipment purchase, whether used or new, Keystone can help you with the process. Our knowledgeable equipment experts can help you with valuations and can help you navigate the financing process.

Contact us today to get started on your next used equipment purchase.