The economic slump of the past few months, a slump exacerbated by the COVID-19 pandemic, has forced various companies in all sectors to temporarily suspend their investment projects. The current uncertainty regarding an eventual upswing has investors and entrepreneurs attempting to navigate uncharted territory, for none of the recessions of the past were quite like this one. Economists, in turn, are leery about predicting what the next few months may bring.
Creditors specialized in equipment financing have been inundated with thousands of requests for postponements of debt payments. They are also facing a significant rise in the number of voluntary surrenders and bankruptcies, which has left them with numerous assets that they must now attempt to sell. Could this be a good time to purchase?
Answering this question calls for considering various factors, outlined below.
There’s no getting around it: an attractive selling price is a key factor when considering the purchase of an asset. If a client can acquire the asset at a lower or similar price from a dealer, in which case it will often include a short-term guarantee, the odds are that he’ll prefer this option. Financing companies often publish selling prices, but these are not always the prices at which the items in question are ultimately sold. And while negotiating is important, it’s worth remembering that creditors will not necessarily accept the first - or any - offer they receive. In fact, they tend to play the “patience” card and wait for a serious buyer willing to pay an amount closer to what they’re looking for. The majority of creditors will have an asset evaluated at the time of repossession. This step can be outsourced to an independent evaluator, done in-house or performed by drawing up a list of comparables from online sources (e.g., equipment auctions sites). Creditors may be more likely to negotiate if they’ve been holding a repossessed asset for a lengthy period. Depending on the number of offers made, an asset that has been on sale for a period of six to 12 months will most likely fetch a discounted price. A creditor with an asset that he has just listed, however, may be willing to wait, depending on his position.
A creditor looking to obtain a better price for its repossessed equipment should consider providing increasingly flexible financing to prospective buyers. And while some creditors aren’t keen to finance assets in such circumstances, well-crafted financing can prove interesting to serious buyers. For example, a longer term could equate lower monthly payments, which can make equipment all that more attractive to buyers. Offering an appealing interest rate or special conditions (e.g., no capital payments for the first three months) can also seduce a future buyer. A reduced rate, in particular, can help buyers save thousands of dollars over the term of a financing agreement, possibly making a potential purchase hard to resist.
Equipment condition :
This factor is the one that generally varies the most. A client who has been in a precarious financial situation for some time may have neglected to maintain his equipment before handing it over to the creditor. In other instances, equipment maintenance may have been performed as required or an asset may be recent (e.g., when a client suddenly passes away). Such a recent asset would presumably be in a very good condition. We recommend that buyers do their homework and have an asset carefully inspected before making a purchase decision. In many instances, the creditor will have an independent third party prepare a report on the equipment’s condition. Such reports usually include information on various equipment parts or features (e.g., a truck’s tires, the front-wheel drive mechanism of an excavator, the number of hours of operation, etc.). During his negotiations with a creditor, the buyer can ask that certain repairs be carried out before he takes possession of the purchased equipment. The creditor will then need to determine whether the cost of the requested repairs and the sale price subsequently obtained constitute an acceptable return on his investment.
A client who needs a given piece of equipment quickly will generally be willing to pay more, particularly if his options in this regard are limited. Ordering a new piece of equipment often entails a waiting period of several months, making the purchase of a repossessed asset from a creditor an interesting alternative.
The next few months should definitely bring numerous opportunities for purchasing repossessed items. Many creditors will advertise these on their Web site or through agents mandated to resell equipment on their behalf. We hope that entrepreneurs will find this content useful, but nonetheless suggest that they do their homework before making a purchase decision.