1. The modified classic: bank financing with machine valuation.
Works more often than you think: If your company has machinery and equipment, obtain a current asset valuation. This helps in the first step to
- Document the assets of your company
- Adjust the book values in your balance sheet to realistic market values.
With a machinery valuation, you provide evidence of the existing assets in your business.
If you have already taken out loans and credit, the bank can use the information documented in the appraisal to determine how much equity you may (or may not) have already accumulated.
Furthermore – and this is the core – the valuation contains estimates of the fair value of the machinery and equipment.
These provide a much more accurate picture of the financial health of your business than pre-determined depreciation schedules.
Suitably qualified machinery and equipment valuation experts are recognized as credible service providers by most lending institutions as impartial third parties who have no interest in their own transactions.
But careful! Talk to your bank beforehand, because they only accept appraisals that they have commissioned themselves!
At the same time, the expert opinion can determine the sum insured for the machinery and equipment to be financed, so that you are adequately insured. Incidentally, this is also important for the financing credit institutions, which have to make sure that they are covered in the event of a loss (Basel III).
You may get better conditions (interest rates, repayment terms) if you can prove the value of your machinery.
The value of your machinery often also depends on the condition it is in at the time of valuation. Has the equipment been regularly maintained and repaired? If so, they will have a longer life and a higher value.
An appraiser can estimate the expected useful life of your equipment.
If you own a machine that is expected to be economically useful for another 20 years, but the bank has only offered you a 5-year term so far, documenting the expected life could allow the bank to extend the repayment period.