Is it getting more difficult for your bank to determine the value of equipment so you know how much to lend on the collateral? There are reasons that you may struggle more to determine equipment value. There are more makes and models on the market and additional features than there were years ago. In addition, precision tools on the equipment can be expensive adds to an asset. Precision tools are found on both agricultural and construction equipment, and remote on-the-ground operation of equipment is becoming more prevalent.
Equipment is an expensive investment for a borrower, and proper maintenance on the equipment can help hold the value of the asset as it ages. Knowing the condition of the asset impacts the value assigned to it. The number of hours it has been used and the condition of the tires and wear points are all things that should be considered when assigning values to equipment.
Some makes and models of an asset may hold value better than others. Understanding which ones hold value can impact the financial statement when they need to be replaced. Getting the Fair Market Value (FMV), Orderly Liquidation Value (OLV) and Forced Liquidation Value (FLV) on all equipment helps you understand which equipment holds its value.
If you are looking for a rough estimate, there are some providers that will give you an average value on a piece of equipment with year, make and model. It won’t take into consideration any special features, repairs or current condition of a specific asset, but it can give you a ballpark value provided you know some high-level information about the asset.
Using a well-versed appraiser that reviews thousands of assets each year can help you get a more accurate value. It would reduce the staff time needed to research information on equipment to get accurate values, giving staff more time to focus on providing great customer service and reaching out to potential new customers. Of course, it all depends on the loan details, the risk involved and how accurate the valuation needs to be.
Whether you typically value equipment internally, use an automated system, use an appraiser or a combination of the above, it’s important to understand all facets of the equipment you are valuing, especially unique assets. It could benefit your organization to have a third-party appraiser help identify the true value of the equipment to ensure you are protected and can lend sufficient funds to your customers. You may already be using a third-party appraiser if you do SBA loans.
