Updated September 02, 2026
Quick answer
Value × advance rate, minus what is owed, minus costs. The trap is that the advance rate is meaningless without knowing which value it applies to — a high rate against forced liquidation value can produce less money than a lower rate against orderly liquidation value. Always compare the resulting dollars, not the percentage.
The Arithmetic
Four steps, in order, and each one reduces the number:
- Start with the appraised value on whichever basis the lender uses
- Apply the advance rate — a percentage, never the whole value
- Subtract existing liens at their exact payoff figures
- Subtract costs — appraisal, filing, documentation
What remains is what reaches your account. Owners generally do the first two steps and are surprised by the last two, which is where the gap between expectation and offer usually sits.
Why the Percentage Alone Tells You Nothing
This is the point of the whole article. Consider the same machine at two lenders:
| Lender A | Lender B | |
|---|---|---|
| Basis used | Forced liquidation value | Orderly liquidation value |
| Value on that basis | $40,000 | $60,000 |
| Advance rate quoted | 80% | 65% |
| Advance | $32,000 | $39,000 |
Illustrative arithmetic, not a quote. Lender A advertises the higher percentage and lends less money. If you shop on advance rate you will pick the worse offer, and the paperwork will look like you got the better one.
Ask both questions together: which basis, and what rate against it. See orderly versus forced liquidation value.
What Moves the Advance Rate
Once the basis is fixed, the percentage still varies:
- How liquid the equipment is. A deep resale market supports a higher rate.
- Whether it is titled. Titled assets are easier to secure and recover; see titled vehicles versus yellow iron.
- Age and remaining life. Equipment near the end of its useful life gets a thinner rate whatever its current value.
- Whether it is installed or mobile. Removal cost comes out of any recovery.
- Your credit and trading history. Secondary to the asset here, but not absent.
The Deductions People Forget
Two reliably produce an unpleasant surprise late in the process.
Existing liens come off at the payoff figure, not the balance on your last statement. A payoff includes interest to the payoff date and any early-settlement charge, and it is always the larger number. Get it in writing at the start.
Costs — the appraisal itself, UCC filing, documentation fees — are usually deducted from proceeds rather than invoiced. On a small advance they matter proportionally more, and on a very small one they can make the transaction not worth doing.
Where an Appraisal Sits Against the Purchase Price
A specific case worth separating out, because it trips up people buying rather than borrowing against equipment they own.
When the loan funds a purchase, lenders generally advance against the lower of the appraised value and the purchase price. Paying above market does not increase what they will lend — the excess is simply more deposit from you.
Buying below market does not automatically help either. Many lenders cap against the price actually paid on a recent purchase, on the reasoning that an arm's-length transaction is itself the best evidence of value. That is the same logic as the seasoning rules on property, and it is why a bargain purchase often cannot be borrowed against at its appraised value straight away.
If you are buying well and expect to finance the difference, ask about that cap before committing, not after.
Working It Out Before You Apply
You can approximate the outcome without an appraisal, and it is worth doing before anyone incurs a fee:
- Find sold comparables for the same model and specification, not asking prices
- Assume a liquidation basis rather than what you would hope to achieve in an unhurried private sale
- Apply a conservative advance rate
- Subtract the written payoff on anything owed
- Subtract a realistic allowance for costs
If the result is not worth the cost of the money, that is much better to discover now than after an inspection has been booked and paid for.
Frequently Asked Questions
How is an equipment loan amount calculated?
Appraised value on the lender's chosen basis, multiplied by the advance rate, less the payoff on any existing lien, less costs. Each step reduces the figure, and the last two are the ones borrowers most often leave out.
Is a higher advance rate always better?
No, and this is the most useful thing to know. A high rate against forced liquidation value can yield less money than a lower rate against orderly liquidation value. Compare the resulting dollars rather than the percentages.
Why is the payoff higher than my balance?
A payoff figure includes interest to the payoff date and any early-settlement or prepayment charge, so it is always larger than the balance on a statement. Ask the existing lienholder for it in writing at the start.
Are appraisal costs taken out of the proceeds?
Usually, along with filing and documentation fees, rather than invoiced separately. On a small advance those costs matter proportionally more and can make the transaction not worth completing.
What advance rate should I expect?
It depends on the basis first, then on how liquid the equipment is, whether it is titled, how much useful life remains, and whether it is installed or mobile. Any rate quoted without naming the basis it applies to is not comparable to another lender's.
Sources & Further Reading
- SBA 504 Loan Program — Federal program terms for fixed-asset lending, where independent valuation is part of the process.
- Federal Reserve Senior Loan Officer Opinion Survey — Quarterly survey of bank lending standards, including how collateral requirements move with credit conditions.
- CFPB Small Business Lending Research — Research and rulemaking on business credit disclosure, including how terms and costs are presented to borrowers.
Figures above describe ranges commonly seen across lenders and reflect published guidance as of the date on this page. Confirm current terms with the cited source or your lender before acting.