The better your credit score, the more options you’ll have regarding business equipment financing. However, you may find fewer choices, more restrictive terms, and higher interest rates with poor scores.
Lenders will also want to see your financial statements, bank accounts, and tax returns. They may even ask for personal and business assets as collateral.
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Know What Lenders Want
As mentioned above, knowing what lenders want when seeking equipment financing with bad credit is important. Typically, lenders will tack on additional fees to help them cover the increased risk associated with lending to borrowers with lower credit scores.
Additionally, the equipment will often serve as collateral for the loan, meaning it can be seized in the event of default. Because of this, some lenders will also require a personal guarantee or blanket lien on all assets held by the business to mitigate their risk.
One way to increase your chances of securing construction or heavy equipment financing with bad credit is to apply with an online lender specializing in this type of funding. These companies are more likely to have lenient qualifications and will value annual revenue and business stability more than credit scores. They may even offer loyalty perks for current customers. Alternatively, consider offering more collateral or updating your business plan.
Know Your Options
Investing in equipment is out of reach for small business owners with bad credit. Thankfully, there are options available to help them secure financing.
For one, many lenders have a lower minimum credit score requirement for equipment financing than other types of loans. They also tend to have a shorter repayment period, making them more flexible than traditional banks when dealing with borrowers with bad credit.
Another thing to consider is that equipment financing can be self-collateralized, meaning the machinery you’re buying will act as collateral for the loan – this is similar to auto loans and mortgages. This can make it easier to get approved, although you may have to agree to a personal guarantee or give up a blanket lien on your assets. Lastly, some lenders will allow you to apply with a good credit cosigner, which can increase your chances of approval and potentially get you better terms.
Offer Additional Collateral
Equipment financing allows small businesses to buy expensive equipment like computers, telephone systems, vehicles, tractors, or heavy-duty machinery. Many business owners need more cash reserves to purchase these items outright, so they use equipment loans. Some lenders offer solutions, like revenue-based financing or accounts receivable factoring, requiring credit score minimums and providing a quicker approval process.
In addition, since the equipment itself serves as collateral, some lenders may not place a premium on personal credit scores or time in business when evaluating eligibility for an equipment loan. With that said, a stronger credit profile can help borrowers secure the best rates and terms on their equipment loans.
Be Flexible
If you need help with bad credit, securing the equipment financing you need can be challenging. However, you can boost your chances of getting approved for this type of funding by offering more collateral. A larger down payment will help lenders feel more comfortable lending to borrowers with poor credit and can reduce your loan amount, lowering your interest rate and fees.
Lenders will also want to see the financial health of your business, including income statements and balance sheets. A strong cosigner with a high credit score can also help you get the approval to purchase essential equipment for your business.
Whether you’re looking to buy a new forklift for your warehouse or a new brewing system for your popular craft brewery, the right equipment can make or break your business. If you need help finding financing, consider working with a non-bank lender that is more flexible than traditional banks.
