8 Tips To Get Equipment Financing With Bad Credit

Q: Can you get equipment financing with bad credit?

Yes, it is possible to qualify for regular equipment or heavy equipment financing with bad credit. You may need to spend more time finding lenders who are willing to work with businesses that have lower credit scores. Expect higher interest rates and stricter collateral requirements. Some business lenders even require a lien on the business and a personal guarantee on top of making a significant down payment and using the equipment as collateral. While you may need to be flexible with loan terms in order to secure equipment financing with bad credit, make sure you can handle the payments and are comfortable with the risk involved.

Q: What equipment loans can I get with a 500 credit score?

It is possible to find a lender who specializes in working with business owners who have bad credit. Give yourself time to explore options so you don’t take an offer with bad terms simply because you’re in a time crunch. Also note that your credit score number isn’t the only credit-related detail lenders look at. They’ll also review your credit report to find out why your score is low. If you’ve had a recent bankruptcy (within the last two years), for example, you’ll be less likely to qualify.

Q: What is no credit check equipment financing?

In theory, no credit check financing refers to a lender that doesn’t look at your credit report when making a decision on your application. In reality, however, a reputable lender will have to pull your credit report, either for your business, your personal history, or both. Some types of financing, like a merchant cash advance or invoice factoring, may check your credit but place a greater emphasis on your company’s cash flow. So-called no credit check financing may come with very high interest rates or large penalties. Review the loan terms closely to understand all of the costs associated with borrowing a loan.

8 Tips To Get Equipment Financing With Bad Credit

Lauren WardUpdated February 8, 2024

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

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. Keep reading to learn more on how you can increase your chances of getting equipment financing with bad credit.

How to Get Equipment Financing with Bad Credit

1. Start with Existing Bank Relationships

Established 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, even if you have bad credit. When shopping for equipment financing with bad credit, it’s worth it to start your search with your current bank.Recommended: How Does Inventory Financing Work?

2. Consider Equipment Leasing

Another option for getting the equipment you need for your business is to lease it rather than purchase it. While an equipment loan may require a sizable down payment, it may be possible to finance the entire cost with a lease. 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.Recommended: Leasing vs Purchasing Equipment for Businesses

3. Offer Additional Collateral

When applying for equipment financing with bad credit, consider offering additional collateral. Even with good credit, lenders may require a downpayment of 20% in addition to the equipment serving as collateral. 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. Increase Your Down Payment

Another 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. Also, a larger down payment results in a lower loan balance, which could mean 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.Recommended: Guide to Business Loan Down Payments

5. Update 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. Get 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 finances, 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.

7. Use a Cosigner

Adding 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 stable income. 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, such as a lower interest rate.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. Recommended: Does A Business Loan Affect Personal Credit?

8. 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, on the other hand, may have more flexible lending requirements.Because these lenders may have less strict requirements, such as 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 Financing

Lantern by SoFi makes it easy to find the right business equipment financing offer for your small business, even if you have bad credit. Simply submit one application through Lantern by SoFi to get a small business loan offer from one of our top lenders, all with no obligation to you.

Frequently Asked Questions

Can you get equipment financing with bad credit?

What equipment loans can I get with a 500 credit score?

What is no credit check equipment financing?

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About the Author

Lauren Ward

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.

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