Comparisons
Equipment financing versus equipment cash out
Purchase money financing and a cash out against gear you already own are not the same product. Over 48 months on $250,000 the gap is about $42,000. Here is why.
The short version. If you are buying the machine, use purchase money financing and never a cash out. If you already own the machine free and clear and the money is for something else entirely, cash out is what exists for that, and it is far cheaper than an advance. These two products share a word and almost nothing else.
Equipment financing is money that buys a specific asset. The lender pays your vendor directly and takes a lien on the thing it just bought. Equipment cash out is money secured by an asset you already own outright. The lender appraises what you have, files a lien, and wires cash into your account. The first one is priced against a new invoice. The second is priced against a used machine at auction.
The same $250,000, priced both ways
Assume a shop with strong revenue and an owner in the mid 600s. Purchase money financing on a $250,000 machine prices at roughly 11 percent over 48 to 60 months. A cash out of $250,000 against equipment already owned prices at roughly 18 percent over 48 months. Same borrower, same month, same collateral class.
| Equipment financing | Equipment cash out | |
|---|---|---|
| What it funds | The machine you are buying | Anything, secured by a machine you own |
| Who gets the money | Your vendor | Your operating account |
| Typical rate | 9 to 14 percent | 14 to 24 percent |
| Monthly payment | $6,461 | $7,344 |
| Total interest over 48 months | $60,147 | $102,493 |
| Collateral basis | The invoice price | Forced liquidation value of used gear |
| How much you can raise | 80 to 100 percent of the invoice | 50 to 70 percent of forced liquidation value |
| Down payment | 0 to 20 percent, often first and last | None, but the advance is smaller |
| Time to funding | 1 to 5 days | 3 to 10 days, plus appraisal |
| Tax treatment | Section 179 or bonus depreciation on a new asset | Interest deduction only |
| Time in business floor | As little as 6 months on titled equipment | Usually 2 years |
Apples to apples over 48 months, cash out costs about $42,346 more than purchase money financing on the same dollar amount. That is 17 cents on every dollar borrowed, for the identical machine, purely because of which side of the transaction the money is on. Nobody is gouging you. The lender on the cash out is holding used, already depreciated collateral it did not select, with no vendor invoice to verify and no control over condition.
The break even, stated plainly
There is no break even where cash out beats purchase money financing on the same purchase. Not at any term, not at any rate. If the money is buying the equipment, financing the purchase is always cheaper. The break even that matters is against the other product owners reach for when they need working capital and already own gear.
Against a merchant cash advance, cash out wins from month one and never gives the lead back. A $250,000 advance at a 1.26 factor costs $65,000 in ten months. The cash out costs about $3,750 in the first month, roughly $41,300 by month twelve, and about $102,500 across a full four years. Run the advance on repeat for those same four years and you are near $312,000. Cash out is roughly a third the price of chronic advance use, and it replaces a daily debit with a monthly payment. That is the comparison that actually saves businesses.
So the plain rule is: purchase money when you are buying, cash out when you already own and need working capital, and an advance only when you own nothing lienable and the deadline is this week.
Who each one is actually for
- Purchase money financing is for you if you are acquiring the asset. It is cheaper, faster, easier to qualify for, and it produces a Section 179 or bonus depreciation deduction on a newly placed asset that a cash out cannot generate.
- Cash out is for you if you own trucks, trailers, machinery, or production equipment free and clear, you need working capital, and you would otherwise be looking at an advance. It converts a dead asset into the cheapest capital available to a business that cannot pass a bank.
- Cash out is also for you as an exit from a stack of advances. Retire the daily debits with one monthly payment secured by iron you already own. See consolidating business debt.
- Neither if the equipment is already financed. You cannot cash out against collateral that carries a lien unless the existing lender subordinates, which they rarely do. Check what is filed against you in what a UCC filing does before you apply.
The mechanics that decide the deal
For titled equipment, meaning trucks, trailers, and most rolling stock, a cash out funder puts itself on the title as lienholder. You cannot sell or trade the unit without a payoff letter, and the state title process adds days to funding. For non titled machinery, the lender relies on a UCC-1 filing and often an inspection or a photo set with serial numbers. Either way, expect to produce the original invoice, proof it is paid off, and an insurance certificate naming the lender as loss payee.
One thing to negotiate hard: whether the lien is specific to the equipment or a blanket lien on all business assets. Cash out funders frequently ask for a blanket. A blanket first position lien makes your next lender either subordinate or decline, which quietly costs you access to cheaper money later. Push for a specific lien on the named units. Many funders will agree if you ask, and almost none will volunteer it.
There is a third structure worth knowing about here. An equipment sale leaseback sells the asset to the funder and leases it back to you. The economics can beat a cash out and the accounting and tax treatment are different enough that you should talk to your CPA before choosing between them. It is the same idea wearing a different legal coat.
What we do with this
Exp Capital Solutions is a broker, not a lender. We do not fund equipment and we do not set anyone's rate or appraise anyone's machinery. What we do first is ask a question that costs us money: is this purchase money or is it working capital? If you are buying the asset we route it to purchase money financing, which prices lower and pays us less than a cash out or an advance would. If you already own the iron, we get you a real advance rate against a real appraisal basis before you build a plan around a number. Then we lay the offers side by side with payment, total cost, and lien terms in the same units.