Of the three places to purchase equipment, i.e. dealerships, auctions and private sellers, the private sale can sometimes be a source of frustration for both the buyer and the seller. It is not uncommon for us to hear the question from a seller of “Why the #@!% do you need all that information?” In this blog, we want to explain why private sales are different and sometimes more involved than dealer sales.
There are good reasons why private sales require more effort, but first, it might be helpful to understand why transacting with a dealer is generally easier in comparison. Purchasing from a dealer is less complicated due to laws embedded in the consumer protection act. Here is a simple scenario: you purchased a new car from a car dealer, that car dealer used a lender to finance said car (often called inventory financing) and that lender also placed a lien on it. Six months later the car dealer goes out of business and never did pay the lender back. The consumer protection act serves as a shield between that lender and you – stopping them from seizing your car. When you buy equipment from a bona-fide / registered dealer there is no need to verify seller identity, run any type of lien searches or do work to ensure the equipment is in good working order – or even exists for that matter. To put it simply, the law protects us as consumers and business owners when buying from a dealership.
These same laws, however, DO NOT extend to a private sale transaction. Any time you buy used equipment from another contractor, both seller and equipment searches need to be done. Almost all of us are aware we should search the serial number for liens; however most small business owners are unaware that we must also search the seller to discover if any security agreements are registered. These blanket security agreements – often called GENERAL SECURITY AGREEMENTS (GSA’s) also have a legal claim against the equipment and any proceeds or equity derived from it even if they do not have a direct lien on the asset. There is also the need to validate the legal owner and their identity, the equipment and condition – even work history reports, set up bills of sale, banking information etc..
All of this extra work is the RIGHT way to purchase via private sale because it removes any chance of issues down the road, and those do happen. Often buyers will do cash deals for speed and not worry about most of the diligence, and often it turns out ok, but there remains the risk of a loss.
In short, when a buyer uses an equipment leasing or financing company to facilitate the purchase, all this work will need to be done so it’s important to work with experienced finance companies to ensure the process is as smooth as possible. Success is in the details.
Private sales often present the best option for used equipment sellers and buyers. Even though it may not feel like it at the time, this diligence provides SAFETY for the buyer and seller by ensuring all the proper paperwork is completed and title is passed.
If you consider purchasing from a private seller, give us a call and BUY-SAFE with Patron West. We have been financing private sales for over 20 years.