{"id":208832,"date":"2026-05-04T10:27:24","date_gmt":"2026-05-04T17:27:24","guid":{"rendered":"https:\/\/www.nationalfunding.com\/blog\/?p=208832"},"modified":"2026-04-28T16:34:54","modified_gmt":"2026-04-28T23:34:54","slug":"what-happens-when-financed-equipment-becomes-obsolete","status":"publish","type":"post","link":"https:\/\/www.nationalfunding.com\/blog\/what-happens-when-financed-equipment-becomes-obsolete\/","title":{"rendered":"What Happens When Financed Equipment Becomes Obsolete\u00a0"},"content":{"rendered":"<p><span data-contrast=\"auto\">When financed equipment becomes obsolete during a loan \u2014 whether because\u00a0new technology\u00a0has leapfrogged the existing design or regulations have made the equipment unusable \u2014 the borrower\u00a0remains\u00a0responsible for the remaining loan balance. This situation also triggers an impairment test that compares the estimated future cash flows the asset can generate against the asset&#8217;s current value on the company&#8217;s balance sheet.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">If a printing company&#8217;s digital press is carried on the balance sheet at $400,000, becomes obsolete due to\u00a0new technology, and is estimated to generate $3,000 per month for the next 10 years, the company would work through the following process:<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<ol>\n<li aria-setsize=\"-1\" data-leveltext=\"%1.\" data-font=\"Aptos\" data-listid=\"1\" data-list-defn-props=\"{&quot;335552541&quot;:0,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[65533,0],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;%1.&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"1\" data-aria-level=\"1\"><span data-contrast=\"auto\">Calculate total estimated future cash flows: 10 years \u00d7 $3,000\/month \u00d7 12 months = $360,000<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:0,&quot;335559739&quot;:0}\">\u00a0<\/span><\/li>\n<\/ol>\n<ol>\n<li aria-setsize=\"-1\" data-leveltext=\"%1.\" data-font=\"Aptos\" data-listid=\"1\" data-list-defn-props=\"{&quot;335552541&quot;:0,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[65533,0],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;%1.&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"2\" data-aria-level=\"1\"><span data-contrast=\"auto\">Compare to the asset&#8217;s carrying value on the balance sheet: $400,000<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:0,&quot;335559739&quot;:0}\">\u00a0<\/span><\/li>\n<\/ol>\n<ol>\n<li aria-setsize=\"-1\" data-leveltext=\"%1.\" data-font=\"Aptos\" data-listid=\"1\" data-list-defn-props=\"{&quot;335552541&quot;:0,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[65533,0],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;%1.&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"3\" data-aria-level=\"1\"><span data-contrast=\"auto\">Because the carrying value ($400,000) exceeds the estimated future cash flows ($360,000), the company must write down the asset \u2014 reducing its value on the balance sheet and recognizing an impairment expense on the income statement for the difference.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:0,&quot;335559739&quot;:0}\">\u00a0<\/span><\/li>\n<\/ol>\n<p><span data-contrast=\"auto\">This impairment expense reduces the company&#8217;s reported profits and can trigger technical loan defaults by pushing key financial ratios outside the thresholds required by the loan agreement.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">As a result, the borrower may need to:<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"2\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\uf0b7&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"1\" data-aria-level=\"1\"><span data-contrast=\"auto\">Add\u00a0additional\u00a0collateral to the loan<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:0,&quot;335559739&quot;:0}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"2\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\uf0b7&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"2\" data-aria-level=\"1\"><span data-contrast=\"auto\">Sell other assets or bring in outside investment to pay down debt<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:0,&quot;335559739&quot;:0}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"2\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\uf0b7&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"3\" data-aria-level=\"1\"><span data-contrast=\"auto\">File for bankruptcy if no other options are available<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:0,&quot;335559739&quot;:0}\">\u00a0<\/span><\/li>\n<\/ul>\n<p><span data-contrast=\"auto\">If the write-down only creates a problem with the\u00a0equipment\u00a0loan itself, pledging\u00a0additional\u00a0collateral can offset the lender&#8217;s risk from the reduced asset value. However, because the write-down also lowers the\u00a0asset&#8217;s\u00a0carrying value, it can violate the terms of other outstanding loans where the company\u00a0is required to\u00a0maintain\u00a0certain ratios \u2014 such as a\u00a0<\/span><a href=\"https:\/\/www.nationalfunding.com\/blog\/debt-ratios-and-why-they-matter-to-small-businesses\/\"><span data-contrast=\"none\">debt-to-equity ratio<\/span><\/a><span data-contrast=\"auto\">\u00a0\u2014 within agreed levels.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">To bring those ratios back in line, the company may need to sell assets, inject personal funds, or accept outside investment to pay down debt. If none of those options are available, bankruptcy may be the only remaining path.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">If you want to avoid ending up in this situation, read\u00a0on for\u00a0how to manage obsolete financed equipment, how it can affect your loan and business credit, and how to work with your lender toward a solution.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<h2 aria-level=\"2\"><b><span data-contrast=\"none\">Obsolete Equipment Impairment Test<\/span><\/b><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;134245418&quot;:true,&quot;134245529&quot;:true,&quot;335559738&quot;:299,&quot;335559739&quot;:299}\">\u00a0<\/span><\/h2>\n<p><span data-contrast=\"auto\">Whether\u00a0new technology\u00a0has made your machinery outdated or a new regulation has restricted its use, the first step after learning equipment is obsolete is to run an impairment test. This checks whether the asset is still worth what your balance sheet says\u00a0it&#8217;s\u00a0worth, using the following three-step process:<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<ol>\n<li aria-setsize=\"-1\" data-leveltext=\"%1.\" data-font=\"Aptos\" data-listid=\"3\" data-list-defn-props=\"{&quot;335552541&quot;:0,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[65533,0],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;%1.&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"1\" data-aria-level=\"1\"><span data-contrast=\"auto\">Get the current carrying value of the asset from your balance sheet.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:0,&quot;335559739&quot;:0}\">\u00a0<\/span><\/li>\n<\/ol>\n<ol>\n<li aria-setsize=\"-1\" data-leveltext=\"%1.\" data-font=\"Aptos\" data-listid=\"3\" data-list-defn-props=\"{&quot;335552541&quot;:0,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[65533,0],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;%1.&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"2\" data-aria-level=\"1\"><span data-contrast=\"auto\">Estimate the total future cash flows the asset will generate over the rest of its useful life.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:0,&quot;335559739&quot;:0}\">\u00a0<\/span><\/li>\n<\/ol>\n<ol>\n<li aria-setsize=\"-1\" data-leveltext=\"%1.\" data-font=\"Aptos\" data-listid=\"3\" data-list-defn-props=\"{&quot;335552541&quot;:0,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[65533,0],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;%1.&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"3\" data-aria-level=\"1\"><span data-contrast=\"auto\">If the estimated cash flows in step 2 are greater than the carrying value in step 1, no write-down is\u00a0required. If the carrying value is greater, you must calculate the impairment charge using this formula:<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:0,&quot;335559739&quot;:0}\">\u00a0<\/span><\/li>\n<\/ol>\n<p><b><span data-contrast=\"auto\">Impairment charge = Carrying value of asset on your balance sheet \u2212 Current\u00a0fair market value\u00a0of asset<\/span><\/b><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><b><span data-contrast=\"auto\">Example:<\/span><\/b><span data-contrast=\"auto\">\u00a0You&#8217;re\u00a0financing an asset carried on your balance sheet at $500,000.\u00a0New technology\u00a0comes out that drops the market value of your equipment to $200,000. You estimate the equipment is still usable and can generate $550,000 in cash flows over its remaining life.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Because the $550,000 in estimated cash flows exceeds the $500,000 carrying value, no write-down is\u00a0required\u00a0and nothing changes.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">However, if you estimated only $400,000 in future cash flows, that amount falls below the $500,000 carrying value and a write-down would be\u00a0required:<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><b><span data-contrast=\"auto\">Impairment charge = $500,000 (carrying value) \u2212 $200,000 (fair market value) = $300,000<\/span><\/b><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">The $300,000 impairment charge is a non-cash expense recorded on your income statement \u2014 you\u00a0don&#8217;t\u00a0need to\u00a0come up with\u00a0cash\u00a0immediately\u00a0to cover it. However, the tax treatment of impairment losses can be complex, so consult your tax professional to understand how this affects your specific situation.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Before moving on, review the terms of all your outstanding\u00a0<\/span><a href=\"https:\/\/www.nationalfunding.com\/solutions\/\"><span data-contrast=\"none\">business loans<\/span><\/a><span data-contrast=\"auto\">\u00a0to check whether this write-down has triggered a technical default in any of them. If it has,\u00a0here&#8217;s\u00a0how to work through it.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<h2 aria-level=\"2\"><b><span data-contrast=\"none\">Technical Default Following Impairment<\/span><\/b><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;134245418&quot;:true,&quot;134245529&quot;:true,&quot;335559738&quot;:299,&quot;335559739&quot;:299}\">\u00a0<\/span><\/h2>\n<p><span data-contrast=\"auto\">Even if\u00a0you&#8217;re\u00a0able to keep making payments, a write-down can trigger a technical loan default if it violates one of your loan covenants, such as:<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"4\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\uf0b7&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"1\" data-aria-level=\"1\"><span data-contrast=\"auto\">Causing your debt-to-equity ratio to exceed an agreed threshold<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:0,&quot;335559739&quot;:0}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"4\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\uf0b7&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"2\" data-aria-level=\"1\"><span data-contrast=\"auto\">Lowering your net worth below an agreed minimum<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:0,&quot;335559739&quot;:0}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"4\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\uf0b7&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"3\" data-aria-level=\"1\"><span data-contrast=\"auto\">Pushing other financial ratios outside of agreed levels<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:0,&quot;335559739&quot;:0}\">\u00a0<\/span><\/li>\n<\/ul>\n<p><b><span data-contrast=\"auto\">Example:<\/span><\/b><span data-contrast=\"auto\">\u00a0You&#8217;re\u00a0required to keep your debt-to-equity ratio below 0.3. Before the $300,000 write-down, your balance sheet looks like this:<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">$1,500,000 Assets = $300,000 Debt + $1,200,000 Equity\u00a0<\/span><i><span data-contrast=\"auto\">(Debt-to-equity ratio: 0.25)<\/span><\/i><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">After the $300,000 write-down, your balance sheet becomes:<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">$1,200,000 Assets = $300,000 Debt + $900,000 Equity\u00a0<\/span><i><span data-contrast=\"auto\">(Debt-to-equity ratio: 0.33)<\/span><\/i><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Your ratio has risen from 0.25 to 0.33, putting you in technical default. Depending on your lender and loan terms, they could call the loan due \u2014 though this is unlikely, since obsolete equipment is harder to\u00a0sell\u00a0and recovering the full balance through liquidation would be difficult.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">More likely, the lender will ask you to sign a\u00a0<\/span><span data-contrast=\"auto\">covenant waiver,<\/span><span data-contrast=\"auto\">\u00a0which allows you to continue with the loan despite the breach. They may charge a fee and increase your interest rate to compensate for the added risk. Keep in mind that a waiver is not guaranteed; lender willingness depends on your relationship, repayment history, and the overall health of your business.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">That said, signing a covenant waiver may not be your best\u00a0option. Depending on your situation, it may make more sense to use available cash to pay off other outstanding debt. Doing so reduces both your assets and your liabilities together, which can bring your debt-to-equity ratio back within the required range.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><b><span data-contrast=\"auto\">Example:<\/span><\/b><span data-contrast=\"auto\">\u00a0If you use $200,000 in cash to pay off other debt, your balance sheet now looks like this:<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">$1,000,000 Assets = $100,000 Debt + $900,000 Equity\u00a0<\/span><i><span data-contrast=\"auto\">(Debt-to-equity ratio: 0.11)<\/span><\/i><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">With your ratio back in compliance,\u00a0you&#8217;re\u00a0in a stronger position to negotiate with your lender \u2014 for example, rolling the unpaid balance on the obsolete equipment into a new\u00a0<\/span><a href=\"https:\/\/www.nationalfunding.com\/equipment-leasing\/\"><span data-contrast=\"none\">equipment financing loan<\/span><\/a><span data-contrast=\"auto\">.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<h2 aria-level=\"2\"><b><span data-contrast=\"none\">Options to Move Forward<\/span><\/b><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;134245418&quot;:true,&quot;134245529&quot;:true,&quot;335559738&quot;:299,&quot;335559739&quot;:299}\">\u00a0<\/span><\/h2>\n<p><span data-contrast=\"auto\">You\u00a0can&#8217;t\u00a0use your obsolete equipment as a trade-in on a new model while your lender still holds a lien on it, but there are several paths forward:<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"5\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\uf0b7&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"1\" data-aria-level=\"1\"><b><span data-contrast=\"auto\">Roll the difference into a new loan.<\/span><\/b><span data-contrast=\"auto\">\u00a0Your lender keeps your business and continues\u00a0earning on\u00a0a larger loan, as long as you can make regular payments. They release the lien on the old equipment so you can sell it or trade it in, and the new equipment serves as collateral on the new loan.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"5\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\uf0b7&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"2\" data-aria-level=\"1\"><b><span data-contrast=\"auto\">Pledge\u00a0additional\u00a0collateral.<\/span><\/b><span data-contrast=\"auto\">\u00a0You can offer other business assets \u2014 or even personal assets, such as a stock portfolio \u2014 as\u00a0additional\u00a0collateral to secure the existing loan. This approach makes sense if the obsolete asset is still generating revenue and\u00a0you&#8217;re\u00a0confident you can repay the balance.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/li>\n<\/ul>\n<ul>\n<li aria-setsize=\"-1\" data-leveltext=\"\uf0b7\" data-font=\"Symbol\" data-listid=\"5\" data-list-defn-props=\"{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;\uf0b7&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}\" data-aria-posinset=\"3\" data-aria-level=\"1\"><b><span data-contrast=\"auto\">Lease new equipment instead of buying it.<\/span><\/b><span data-contrast=\"auto\">\u00a0If you need new equipment to stay competitive but\u00a0can&#8217;t\u00a0do anything about the obsolete asset, leasing may be the right move. You get access to current technology without\u00a0taking on\u00a0the risks of ownership, and most leases include maintenance or replacement service level agreements (SLAs) that protect you from major repair costs. The tradeoff is that leasing is a pure operating expense \u2014\u00a0you&#8217;re\u00a0not building any equity in the asset.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/li>\n<\/ul>\n<p><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">When financed equipment becomes obsolete, you\u00a0remain\u00a0responsible for the remaining loan balance. The first step is to compare the\u00a0asset&#8217;s\u00a0carrying value on your balance sheet against the estimated future cash flows it will produce. If cash flows are higher, nothing changes. If the carrying value is higher,\u00a0you&#8217;ll\u00a0need to write down the asset and work with your lender to find the best path forward. Depending on your situation, that could mean continuing your current loan,\u00a0refinancing\u00a0and rolling into a new loan, or leasing new equipment. If needed, bringing in outside investment or using personal assets to cover the balance can help keep the situation from escalating further.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:240,&quot;335559739&quot;:240}\">\u00a0<\/span><\/p>\n<p><i><span data-contrast=\"none\">National Funding does not provide tax,\u00a0legal\u00a0or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax,\u00a0legal\u00a0and accounting advisors.<\/span><\/i><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;335559738&quot;:195,&quot;335559739&quot;:195}\">\u00a0<\/span><\/p>\n<p><span data-ccp-props=\"{}\">\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>When financed equipment becomes obsolete during a loan \u2014 whether because\u00a0new technology\u00a0has leapfrogged the existing design or regulations have made the equipment unusable \u2014 the borrower\u00a0remains\u00a0responsible for the remaining loan balance. This situation also triggers an impairment test that compares the estimated future cash flows the asset can generate against the asset&#8217;s current value on<a class=\"excerpt-read-more\" href=\"https:\/\/www.nationalfunding.com\/blog\/what-happens-when-financed-equipment-becomes-obsolete\/\" title=\"ReadWhat Happens When Financed Equipment Becomes Obsolete\u00a0\">&#8230; Read more &raquo;<\/a><\/p>\n","protected":false},"author":38,"featured_media":208833,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[42],"tags":[],"class_list":["post-208832","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-managing-your-business"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.8 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What Happens When Financed Equipment Becomes Obsolete\u00a0 - The Bottom Line by National Funding<\/title>\n<meta name=\"description\" content=\"You&#039;re\u00a0still responsible for a loan when equipment becomes obsolete.\u00a0Here&#039;s\u00a0what can happen next, and the actions you can take.\u00a0\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.nationalfunding.com\/blog\/what-happens-when-financed-equipment-becomes-obsolete\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What Happens When Financed Equipment Becomes Obsolete\u00a0 - 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