Equipment financing

When an SME acquisition includes significant machinery, a delivery fleet, or specialized fixtures, a buyer does not have to fund all of it through the same acquisition loan that covers goodwill and working capital. Equipment lenders and lessors specialize in exactly this category and will often lend a higher proportion of an asset’s value than a general lender would.

How it is typically structured

• A term loan secured specifically against the equipment, separate from the general security agreement backing the rest of the deal
• A lease, where the financing party retains ownership and the operating business pays for the use of the asset over time
• A sale-leaseback of equipment the target already owns outright, freeing up cash at closing in exchange for ongoing lease payments

Why the age and condition of the equipment matter

A lender’s advance rate against equipment tracks how reliably that equipment could be resold if the loan defaulted, so older, specialized or heavily used machinery generally supports a smaller advance than newer, generic equipment with an active resale market. An independent condition assessment, not the seller’s book value, is what an equipment lender actually underwrites against.

What buyers commonly miss

Equipment already financed under an existing lease or loan is not automatically part of what a buyer is acquiring free and clear — assuming that financing, paying it out, or replacing it are three different outcomes with different cost and timing implications, and confirming which applies is a diligence step, not something to leave until after closing.