Equipment and inventory financing: using the business's own assets to help buy it

What is equipment financing in a business purchase?

It is a loan secured by the business's equipment or inventory, used to help pay the seller, and repaid from the business's cash flow. Instead of you bringing cash, the business's own hard assets back a loan. The lender's safety net is the equipment, not your savings. The payment becomes a monthly cost of the business, so it has to fit inside the profit.

Which businesses is this a good fit for?

Asset-heavy businesses with equipment that holds its value and is not already pledged. Good fits:

• Auto repair, collision, and detailing shops
• Trades: HVAC, plumbing, electrical, landscaping
• Light manufacturing and machine shops
• Businesses with a fleet of vans or trucks
• Distributors and stores with steady inventory
• Service businesses with few hard assets, like agencies or consulting
• Old or worn-out equipment
• Equipment already securing another loan
• Inventory that is slow-moving, seasonal, or hard to resell

Poor fits:

What does a lender look at?

What the assets would really sell for, who already has a claim on them, and whether the business can make the payment.

1. 1
   The equipment list

   Make, model, year, condition, and serial numbers. A listing's "FF&E value" is the seller's number, not the lender's.

2. 2
   An appraisal

   Lenders lend against appraised value, often what the equipment would fetch in an orderly sale, which is usually less than the listed value.

3. 3
   Liens

   A UCC lien search shows whether any lender already has a claim. Existing loans get paid off at closing, which uses up some of the value. A BizFacts report includes active UCC filings.

4. 4
   The advance

   The lender lends a portion of the appraised value. How much depends on the lender and the asset.

5. 5
   Cash flow

   The new payment has to fit in the business's profit, alongside every other payment.

How does the timing work at closing?

The loan and the purchase have to happen together, and the documents have to say so. This is the part first-time buyers miss. The lender is lending against assets the seller still owns until closing. So the purchase agreement, the loan, and the lien payoffs all have to line up, and the seller has to agree to cooperate with the lender before closing. The lender must also know the money is going toward buying the business. In a stock sale, where the company itself changes hands, the company can borrow against its own assets once it is yours. In an asset sale, the new company you form buys the assets and pledges them. Have a deal attorney set the order. See asset sale vs stock sale.

What about inventory and receivables?

Inventory can secure a loan too, usually for a smaller share of its value, and receivables only work in some businesses. Lenders are more cautious with inventory because its value moves. Receivables (unpaid invoices) can back a line of credit when the business bills other businesses that pay reliably. They rarely work for businesses that sell to consumers.

When does this fall apart?

When the numbers the seller listed don't survive an appraisal, a lien search, or the payment test. Common deal breakers:

• The appraisal comes in well under the listed equipment value
• Equipment is leased, not owned
• An existing lender's payoff eats most of the value
• The seller won't cooperate with the lender before closing
• The payment, added to the other debt, leaves too little after you get paid

That last one matters most. Read DSCR after owner pay.

Where does this sit in a funding plan?

Near the front, right after any extra cash already in the business, and before you ask the seller for a note. Asset financing uses what the business already has. Asking the seller to finance part of the price is a favor, so it should cover only what is left after the business has carried its share. An SBA loan comes last because it needs a cash down payment. The full order is in how to buy a business with little money down.

How DealBrain estimates this for you

DealBrain counts equipment and inventory carefully in the free preview, because there is no appraisal yet. When a listing shows equipment or inventory, DealBrain's free preview counts 50% of the listed equipment value and 30% of the inventory, and tells you it is doing so. It estimates the monthly payment and shows whether the business can still cover all its debt after your pay. If you unlock the full read, the plan uses 70% of the equipment value, pending a real appraisal, and DealBrain can point you to one Murr Capital application that reaches 75+ lenders. Murr Capital is a sister company of Biz Checkout.

These are DealBrain's planning assumptions, not a lender's offer. The real number comes from an appraisal and a lender.

Preview with DealBrain · Free preview, private to you, no credit pull. Then $299 per deal, one time, for the full read.

Estimates only. Not a loan offer, and not legal, tax, or financial advice.