If you have poor credit but need to secure equipment for your business, rest assured there are options at your disposal. While you might have to do some research and take some extra steps to get approved, you can lock in an equipment loan with a less-than-perfect credit score. Here’s everything you need to know about securing equipment financing with bad credit.
What is Equipment Financing?
Equipment financing is the use of a loan or lease to purchase or borrow hard assets for your business. This type of financing can be used to purchase or borrow any physical asset, such as a restaurant oven or a company car. There is an enormous number of variations on equipment financing that cater to specific types of businesses and equipment.
Unlike a working capital loan, the asset you’re purchasing serves as its own collateral. For this reason, equipment financing tends to be a more cost-effective and lower-risk way to acquire equipment than other forms of financing.
Once you pay off your equipment loan, you’ll own the equipment outright. Equipment financing can come in handy if you don’t have the cash reserves to pay for computers, telephone systems, tractors, heavy-duty machinery, and anything else you need up front.
Deciding if an equipment loan is right for your business will depend on several factors. However, if you’re reliant on expensive equipment to run your business, equipment financing is a viable option.
How Bad Credit Affects Equipment Financing
Your credit tells lenders how likely you are to repay what you borrow. If you have bad credit, they’ll view you as a risky borrower and may be more hesitant to lend to you. The good news is, there are lenders like Fundible who have lenient requirements and serve borrowers with poor credit.
Lenders often consider other factors like your annual revenue, profitability, cash flow, and outstanding debt when deciding whether to approve you for an equipment loan. Keep in mind, however, that if you have a bad credit history you might have to settle for a higher interest rate or make a larger down payment than a business owner with good or excellent credit.
Benefits of Bad Credit Equipment Financing
While you may not qualify for the lowest rates and most favorable terms when you apply for a bad credit equipment loan, there are several advantages to equipment financing.
- Easy Application: In most cases, you can apply for bad credit equipment financing online, from the comfort of your own home or office. The process shouldn’t take more than a few minutes.
- Flexibility: Most lenders will let you buy just about any type of equipment your business depends on to serve your customers. You may use an equipment loan for basic office equipment like computers and fax machines or more specialized equipment, such as bulldozers and excavators.
- Equipment Acts as Collateral: If you move forward with equipment financing, the equipment itself will serve as collateral. In some cases, the lender may require all business assets be included as collateral.
- Multiple Repayment Options: Lenders who specialize in bad credit equipment financing often offer a number of repayment terms. You can choose from a shorter-term loan that will save you in interest or a longer-term loan that will lower your monthly payments.
Financing equipment offers a more sustainable method of adding production assets than purchasing equipment outright, when taking into consideration how rapidly evolving technology could considerably devalue your investment in a matter of just a few years.
Who Qualifies for Bad Credit Equipment Financing?
How much your business qualifies for and the approved interest rate depends on the type of equipment, your business’s financials, and credit history.
Since the equipment acts as collateral, poor credit equipment financing & leasing is a great decision even if your business or personal credit score isn’t perfect. In most cases, underwriters are just as concerned with the equipment as with your borrowing history. In other words, the equipment alone can be enough to get your business qualified for funding.
How to Increase Your Chances of Approval
If you have bad credit but need to borrow money to fund the cost of your business equipment, there are certain strategies that will boost your likelihood of approval. These tips can provide a starting point to help you maximize your odds so you can grow your business with the right equipment.
Apply with Online Lenders
It can be difficult to meet the equipment financing standards of a traditional bank when you have bad credit. Online lenders have more flexible lending requirements. Since 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 apply online and get approved very quickly.
Consider Equipment Leasing
By understanding equipment financing vs. equipment leasing, you can decide which makes more sense for your unique needs. With an equipment loan, you make a down payment and finance the rest of the equipment cost. An equipment lease, on the other hand, lets you rent and use the equipment for a specific period of time. While most businesses return the equipment at the end of the lease, some decide to buy it at fair market value or explore other options outlined in their agreement.
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.
Offer Additional Collateral
In normal situations, the value of the equipment is enough collateral to satisfy the lender but equipment financing for bad credit may come with stricter requirements. In a typical equipment loan, the down payment plus the value of the equipment itself serves as collateral. Since the lender can seize the equipment if you default, they take on less risk. When applying for equipment financing with bad credit, consider offering additional collateral to help secure the loan and reduce risk for the lender.
Increase 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 work around 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.
Perfect Your Business Plan
Depending on the lender you apply with, you may need to submit a business plan as part of your application. Your business plan is an important document that shows lenders who you are and what you plan to do with the funds. A strong business plan can highlight your business acumen and could help you demonstrate how the equipment purchase will help grow the company. Be sure to 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.
Apply with a Cosigner
Adding a cosigner to your equipment financing application may also help you qualify for a loan. A cosigner is someone with strong credit, a stable income, and significant assets. If you apply for an equipment loan with a cosigner, lenders will consider their financial situation in addition to yours. This can increase your chances of approval and potentially lead to lower rates and better terms. 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.
Finding Equipment Financing
Save the time and effort of searching for lenders that want to work with you. Instead, you can submit one application through Fundible to get the help you need to grow your business. We want to work with you to find an equipment financing or leasing program that addresses your key business issues, such as cash flow, budget, cyclical fluctuations, and growth. No matter the issues, our flexible payback structures address the specifics of your business operations.
Don’t let bad credit prevent you from locking in the equipment loans you need. By having the right equipment, your business can significantly increase its productivity and sales.
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