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Successfully getting equipment financing with bad credit isn’t impossible. But 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 researching lenders before you actually need the loan funds and give yourself the time to thoughtfully prepare your equipment financing application. These eight tips can provide a starting point to help you to maximize your odds so you can grow your business with the right equipment.
1. Starting with Existing Bank RelationshipsEstablished businesses may begin the search for equipment financing with a bank or lender they already work with. Even when looking for poor credit equipment financing, potential borrowers may consider starting their search at the institution they already have a relationship with. Depending on the financial institution, there may be certain programs that offer rate discounts or other perks to existing customers. This may not help companies looking for startup equipment financing with bad credit (there are other startup loan alternatives to explore), but this can be one starting point for those with an existing history.
2. Considering Equipment LeasingAnother option for getting the equipment you need for your business is to lease it rather than take out a business loan to pay it outright. While an equipment loan may require a sizable down payment, it may be possible to finance the entire cost with a lease. You may also be able to include some soft costs in that amount, such as delivery fees or taxes. Be aware of the interest and other requirements when leasing equipment. Some leases may require a maintenance package or have a high interest rate. These fees and added costs can sometimes make leasing equipment more expensive than purchasing it.Once the lease period is over, you generally have the option to either return the equipment or buy it for an amount based on what you’ve already paid (not including interest) and 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 You’re not locked into owning something that may be outdated by the time you finish making payments.Finally, check to see if the lease company reports payments to the business credit bureaus.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 CollateralWhen applying for equipment financing with bad credit, consider offering additional collateral. Lenders may require a down payment of 20%. In normal situations, this down payment paired with the value of the equipment is enough collateral to satisfy the lender. But equipment financing for bad credit may come with stricter requirements. Some lenders may accept additional collateral such as other hard assets like real estate to help secure the loan. Just remember that any collateral used could be seized and liquidated by the lender if you default on the loan, even if it’s 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 PaymentAnother way to make your application 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. 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 PlanDepending 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 OrderNo 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. Your application for business equipment financing with bad credit may be strengthened if you are able to demonstrate a strong cash flow. 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 CosignerAdding a cosigner to your equipment financing application may also help you qualify for a loan. Generally, a cosigner is someone who has a strong credit score and potentially significant assets as well. The benefit is that the lender will consider the cosigner’s credit score as well as your own. 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, as well.The downside, of course, is that the cosigner has equal responsibility for the equipment loan as you do. If you are late on payments or end up defaulting, that negative activity will impact your cosigner as well. They may also be responsible for repaying the loan if you don’t. 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 LendersIt can be difficult to meet the equipment financing standards of a traditional bank when you have bad credit. 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. But if they do a hard credit pull, it could impact your credit score.
Finding Equipment FinancingThere 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 rates and terms you may qualify for. Lantern makes 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. Explore equipment financing with Lantern Credit today.
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SoFi Lending Corp. operates this Lantern website in cooperation with Even Financial Corp. ("Even"). If you submit a loan inquiry, SoFi will deliver your information to Even, and Even will deliver to its network of lenders/partners to review to determine if you are eligible for pre-qualified or pre-approved offers. The lenders/partners receiving your information will also obtain your credit information from a credit reporting agency. If you meet one or more lenders' and/or partners' conditions for eligibility, pre-qualified and pre-approved offers from one or more lenders/partners will be presented to you here on the Lantern website. More information about Even, the process, and its lenders/partners is described on the loan inquiry form you will reach by visiting our Personal Loans page.No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit (https://www.consumer.ftc.gov/topics/credit-and-loans)The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.SOLC20067
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About the Author
Lauren Ward is a personal finance expert with nearly a decade of experience writing online content. Her work has appeared on websites such as MSN, Time, and Bankrate. Lauren writes on a variety of personal finance topics for SoFi, including credit and banking.