What Does Equipment Maintenance Have to Do With Commercial Financing?
By Julie Murphy, Construction Executive
Many equipment owners and operators have an equipment maintenance program that helps them keep track of when to perform specific maintenance procedures. These are mainly done at the urging of the equipment manufacturer who knows that properly maintained equipment performs better, lasts longer and is less prone to breakdowns and failure.
But proper maintenance also has an impact on the long-term value of equipment, which can actually help when it’s time to trade in or replace that piece of machinery. It can be especially beneficial when using the equipment as collateral for a loan.
In fact, there is a broad range of benefits of proper equipment maintenance.
FIVE ADVANTAGES OF PROPER EQUIPMENT MAINTENANCE
- increased equipment uptime;
- enhanced efficiency when running;
- overall cost reduction;
- improved lifespan of the equipment; and
- long-term equipment value.
The first three bullets in the above list have meaning for the general day-to-day operations of a business. If equipment is maintained well, it’s less likely to break down, which leads to increased uptime and more working hours for the equipment, therefore increased revenue.
Well-maintained equipment runs more efficiently and is less costly to maintain in the long run – that goes for almost any type of machine. Clogged air filters cause the mechanisms to work harder to achieve the same results. Dirty oil doesn’t keep an engine as well-lubricated as clean oil. Worn belts and hoses slip or develop leaks. All of these result in operational inefficiencies.
Increased uptime and improved efficiency result in increased revenue. Reducing the cost of operation, cost of replacement parts and cost of potentially lost productivity all combine to reduce overall expenses. The combination of increased revenue and decreased costs can mean a big difference to a business’ bottom line. And the value of proper maintenance is compounded by the amount of equipment in the fleet. The larger the fleet, the greater the impact on the overall profitability.
The last two bullets in the list above address the equity in the equipment. If the equipment is well-maintained, it has a longer usable life and retains its value longer. If the usable life of a piece of equipment can be extended by three to five years, that’s three to five years of additional revenue from that same machine. Additionally, that means the same piece of equipment would be worth more money for a longer period of time. Well-maintained equipment can then can be used as collateral to borrow against. The higher the value of a piece of equipment, the more borrowing power it provides. When a business needs to borrow money – for whatever reason – using equipment as the collateral on that loan can be highly beneficial. Having well-maintained equipment with equity is essentially having dry powder for a rainy day.
Of course, there are many considerations that come into play when assessing the value of a used piece of equipment (for example: age, options, accessories, hours of service), but a well-maintained unit could significantly improve borrowing power. And that could have positive impact on a business’s ability to grow, or when navigating unexpected conditions.