Tips To Obtain Equipment Financing With Bad Credit
Getting financing equipment with bad credit isn’t difficult. Just as with any other type of financing when you have poor credit, you may have to alter your expectations and do some extra legwork in order to get approved.
Consider investigating lending institutions before you actually need the loan funds and give yourself a moment to thoughtfully prepare your equipment financing application. These tips can help you to maximize your probabilities so you can grow your company with the right equipment.
1. Starting With Existing Bank Relationships
A developed business might begin the look for equipment financing with a bank or lender they already work with. Also when looking for poor credit equipment financing, potential borrowers may consider starting their investigation at the institution they currently have a relationship with. Depending on the financial institution, there might be specific programs that offer price discount rates or other rewards to existing customers. This may not help companies searching for start-up equipment financing with poor credit (there are other start-up finance options to explore), however, this can be one starting point for those with an existing history.
2. Considering Equipment Leasing
One more option for obtaining the equipment you need for your business is to lease it rather than obtain a business loan to pay it outright. While equipment finance may require a large deposit, it might be possible to finance the whole cost with a lease. You might also be able to include some soft costs because of amounts, such as distribution fees or tax obligations.
When leasing equipment, be aware of the interest and other requirements. Some leases might require a maintenance package or have a high-interest rate. These fees and added costs can sometimes make leasing equipment more expensive than buying it.
Once the lease period is over, you generally have the option to either return the equipment or buy it for an amount based upon what you’ve already paid (not including interest) and also the current value of the equipment. Leasing could be beneficial if you need equipment that may need future upgrades, like computers, point of sales systems, or other technology. You’re not locked into owning something that may be outdated by the time you finish making payments.
Check to see if the lease company reports payments to the business credit bureaus. Like personal credit scores, payment history is one of the determining factors of your business credit score.
3. Offering Additional Collateral
When applying for equipment financing with bad credit, consider offering additional collateral. Equipment financing for bad credit may come with stricter requirements.
Just remember that any collateral used could be seized and liquidated by the lender if you default on the loan, even if it’s a personal property like your home or savings account. Carefully review your business financials to make sure you’re comfortable with your ability to repay the loan, otherwise, you may put more at risk than just the equipment you’re financing.
4. Increasing Your Down Payment
Another way to make your application for a small business loan more attractive to lenders is to make a larger down payment. This may only work for businesses with large cash reserves. But it could be a workaround to get equipment financing with bad credit. Plus, a larger down payment results in a lower loan balance. This could result in a smaller monthly payment and less interest paid over the course of the loan. Review the loan terms, fees, and interest rates closely to evaluate how a larger down payment could impact the overall cost of your loan. While not every business will be able to pull this off, it does offer benefits for those who can.
5. Updating Your Business Plan
Depending on the lender you apply with, you may need to submit a business plan as part of your application. A strong business plan can highlight your business acumen and could help you demonstrate how the equipment purchase will help grow the company.
A business plan contains several elements, including an overview of the company and structure, market analysis, operations, and financial projections. Provide in-depth data to show the lender that there’s a market need for your product or services and that you’re successfully managing both operations and business cash flow. You could also include a section outlining your funding request, especially if you’re applying with a traditional bank or lender.
6. Getting Your Company Financials in Order
No matter what type of lender you apply with, you’ll most likely need to submit your company financials. You may also need to provide some documentation on your personal financials as well. Consider pulling together the company’s recent tax returns, plus bank statements from the last several months.
If you are able to demonstrate a strong cash flow, your application for business equipment financing with bad credit may be strengthened. It can help show lenders that your company has the money to make the required monthly payments, even if your credit history either isn’t established or has some blemishes from the past. Consider getting help from a professional accountant to make sure your financial information is completely accurate.
7. Using a Cosigner
Adding a cosigner to your equipment financing application may also help you qualify for a loan. Applicants with lower credit scores may have a better chance of being approved for equipment financing when applying with a cosigner and may even qualify for more competitive loan terms, like a lower interest rate.
The downside, of course, is that the cosigner has equal responsibility for the equipment loan as you do. Having a large equipment loan on their credit report could also hurt their chances of later qualifying for their own loan since the equipment financing will count towards their debt-to-income ratio.
8. Applying With Online Lenders
When you have bad credit, it can be difficult to meet the equipment financing standards of a traditional bank. Online lenders, on the other hand, may have more flexible lending requirements.
Because these lenders may have less strict requirements, like a lower minimum credit score, they may offer less competitive rates and terms than traditional lenders. You can usually apply online and get a quote (and potentially approval) within minutes.
As you are shopping around for quotes, double-check how a pre-approval impacts your credit score. Many online lenders only perform a soft pull in the early stages, allowing you to shop around and compare offers before committing to one lender. If they do a hard credit pull, it could impact your credit score.
Finding Equipment Financing
There are a few lenders who specialize in equipment financing for borrowers with less-than-ideal credit scores. A few examples include National Business Capital Services, Advance Point Capital, and Crest Capital. Consider exploring these and others to see what types of terms and rates you may qualify for.
Lease Funders make it easy to find the right business equipment financing offer for your business. Save the time and effort of manually searching for lenders that want to work with you. Instead, you can submit one application through Lantern Credit to get the help you need to grow your business.
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