You paid off that excavator two years ago. The loader too. Every month they go to work, and every month they’re worth real money that’s doing nothing for your cash flow. Meanwhile you need a down payment for a bigger job, payroll through a slow winter, or cash to take on a contract you’d otherwise pass on.
If you’re also carrying a merchant cash advance or two, that idle equity is the cheapest way out of those daily debits. For years the standard answer was “sell it and lease it back” or “go to the bank.” There’s a cleaner option now: a heavy equipment cash-out refinance on the equipment you already own. Here’s how it works, straight, including where it doesn’t make sense.
What a heavy equipment cash-out refinance is
It’s a new loan or lease secured by equipment you own outright, or by equipment you’re still paying on. It works one of two ways:
- Cash out equity on paid-off units. The lender advances you a percentage of the equipment’s current value, and you pay it back over a fixed term.
- Refinance existing debt. The new deal pays off your current lender, stretches the term, and lowers the monthly payment. If there’s equity left over, you can take some of it as cash.
The deal is written as a lease, an equipment finance agreement (EFA) or a term loan, secured only by the specific machines in the deal. The lender either goes on the title or files a UCC on those units. Not a blanket lien on your whole business.
How it’s different from a sale-leaseback
A sale-leaseback means you sell the equipment to a lender and lease it back. It works, but it’s clunkier: there’s a sale, ownership changes hands, and the paperwork and tax picture get more complicated. With a cash-out refinance you keep ownership and borrow against the iron. For most owner-operators it’s the smoother route to the same cash. (Buying new or used iron instead? That’s a job for regular equipment leasing.)
The program, in plain numbers
This is our current heavy equipment cash-out refinance program:
- Equipment: heavy equipment (yellow iron) only: excavators, loaders, dozers, backhoes, graders and similar. 15 years old or newer. Farm and forestry equipment can work when there’s enough value in the whole package.
- Amount: $10,000 to $750,000.
- Advance: up to 60% of the equipment’s value. Heavier, higher-value machines get the higher end of that range.
- Term: 36 months, $0 down.
- Rates: from 9.9%.
- Who qualifies: 700+ credit, a clean PayNet (the business equipment-payment history that Equifax keeps on loans and leases), and 3+ years in business.
Those are real numbers, and they’re for strong files. If you’re under 700 or under three years in business, this isn’t your program. Ask anyway, though, because there may be another route.
When it makes sense
- You need working capital and your equity is tied up in iron. Your machines become the collateral, so you don’t have to put up your house or take a high-cost cash advance.
- Your current payments are squeezing you. Refinancing over a fresh term can drop the monthly payment and free up cash flow.
- You’re growing. Use equity in older paid-off units as the down payment on new equipment, or to cover mobilization on a big job.
- It works as an inflation buster. You lock a fixed payment today and pay it back with tomorrow’s dollars while the machine keeps earning.
Why it beats a merchant cash advance
If you’re a contractor with paid-off iron and you’ve been taking a merchant cash advance for working capital, you’re paying for speed you may not need. Here’s how the two stack up:
Equipment Dealers & VendorsOffer Financing On the SpotFree Vendor Package: program guide, credit guidelines & customer credit app. Close more sales, earn referral fees.Download Free →- Cost. An MCA is priced with a factor rate, usually somewhere around 1.2 to 1.5. Take $100,000 at a 1.35 factor and you owe $135,000, typically inside 6 to 12 months. Work that out as an annual rate and it often lands well into the double or even triple digits. This program starts at 9.9%.
- Payment schedule. An MCA takes a daily or weekly debit straight out of your bank account, rain or shine, slow week or not. Here you make one fixed payment a month.
- Term. An MCA runs months. This runs 36 months, so each payment is a smaller slice of the balance.
- Collateral that makes sense. An MCA buys a piece of your future sales. Here the iron you already own is the security, and only the specific machines in the deal.
- Credit building. A lease or loan paid as agreed builds the equipment payment history (PayNet) that gets you better terms on your next machine. MCA payments generally don’t.
To be fair, an MCA has its place. It’s fast, it’s flexible on credit, and it needs no collateral. If you don’t own equipment with equity in it, or your file doesn’t qualify for asset-based financing, an MCA may be the only door open. But if you’re sitting on paid-off iron, it usually isn’t the cheapest door.
Use your equipment to pay off high-cost MCAs
Here’s where this gets interesting. If you’re carrying one or more MCAs, the equity in your free-and-clear equipment can be used to pay them off. That consolidates them into one fixed monthly payment over a longer term and frees up the cash those daily debits have been draining.
A simplified illustration (not a quote; your actual rate, approval and fees depend on your file):
- You still owe $90,000 on an MCA, debited at about $750 every business day. That’s roughly $16,000 a month going out.
- You own a paid-off excavator and loader worth about $250,000. At up to 60% of value, that can support roughly $150,000.
- $90,000 pays off the MCA, and about $60,000 goes into your account as working capital.
- At the 9.9% starting rate over 36 months, the payment on $150,000 is about $4,800 a month, before fees.
In this example, roughly $11,000 a month that used to leave your account every business day stays in the business, and you’ve got $60,000 in the bank on top of it.
The straight talk on consolidating MCAs:
- You still have to qualify. That means 700+ credit, a clean PayNet and 3+ years in business. The lender will see the daily debits on your bank statements. Positions that are current are workable. Defaulted or renegotiated positions are a much harder conversation.
- Know your payoff number. Many MCAs don’t discount early payoff, so you may owe the full remaining purchased amount, not just what you originally received. Get a payoff letter from each funder.
- Don’t refill the hole. Once the MCA is paid off, the worst move is taking a new one on top of the refinance. Consolidating only works if it’s the last stack.
The honest cons
- You’re adding a payment. A paid-off machine has no payment, and after the refinance it does. Only do it if the cash earns more than it costs.
- 36 months is a short term. That keeps total interest down, but the payment is higher than on a 60-month deal.
- 60% isn’t 100%. You won’t get the full value of the machine, and that’s normal. The lender needs a cushion.
- Fees and prepayment vary. They depend on whether the asset is titled, and on the agreement it’s written under (lease, EFA or loan). Read the terms, and ask about early payoff before you sign.
- Taxes. Refinancing equipment you already own is not the same as buying new equipment under Section 179. Talk to your CPA about how the deal will be treated.
Myths, busted
“Nobody refinances paid-off equipment.” That used to be mostly true. The market has shifted, and dedicated programs exist now.
“I have to sell it to get cash out.” No. With a cash-out refinance you keep ownership.
“It’s the same as an MCA.” It isn’t. This is asset-secured financing at a fixed rate on a fixed term, not a purchase of your future receivables.
FAQ
How much can I get?
Up to 60% of the equipment’s value, from $10K to $750K. Heavier, more valuable units get a higher advance.
Can I refinance equipment I’m still paying on?
Yes. The new deal pays off your existing lender and extends the term, and any remaining equity can come out as cash.
How old can the equipment be?
For heavy equipment, 15 years old or newer.
Can I use it to pay off my merchant cash advance?
Often, yes, if you qualify. The equity in your paid-off heavy equipment can pay off current MCA balances and roll them into one fixed monthly payment over 36 months, with any leftover equity going to you as cash. Get a payoff letter from each funder first.
See what your iron is worth
If you’ve got paid-off heavy equipment sitting on equity, or MCAs eating your cash flow, find out what your iron can do for you. See the program details, or apply here with your equipment list (make, model, year, hours) and any MCA payoff letters, and we’ll tell you straight whether it pencils out.
