Equipment financing is another component of an asset-based loan, however, not a component that would traditionally stand on its own like receivables financing. Companies that own machinery and equipment can include these assets on the borrowing base certificate and receive funding.
Like inventory financing, lenders will determine the asset value based on an appraisal and fund a percentage of the appraisal value. Advance percentages tend to be in the same range of inventory advances and may vary for new equipment versus old. Borrowers can expect to receive 50% of the orderly liquidation value of the equipment and sometimes higher for newer machinery. Some asset based lenders will limit the equipment financing portion of the loan to a percentage of the credit facility.
Asset based lenders prefer to provide equipment finance to companies that own large machinery and equipment that is bolted down. Asset based lenders do not like machinery or equipment that can be easily moved as it is harder to keep track of. Some lenders will specifically state that they do not provide equipment financing for construction equipment or rolling stock while other lenders do not take issue.
For companies that need financing up to 100% of the purchase price of machinery & equipment there are equipment financing programs available outside of the asset based lending realm. Equipment finance companies have various loan and lease products available with terms ranging from 12 months to 10 years.
Equipment finance can be a great source of working capital for manufacturers that have large pieces of equipment that have good asset value and are free of any liens. While equipment financing is not the main component of an asset based loan, companies with equipment may consider using it as an additional asset to generate availability on the borrowing base certificate.
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