There are times when businesses face difficulties with their finances that result in bad credit. A bad credit history restricts your chances of being approved for equipment financing, regardless of whether the equipment will help improve business profits.
Traditional lending institutions, such as banks, may deny you the loan you need. But there are specialized loan companies that can look beyond your bad credit. These lenders can give you a second chance at the equipment you need to grow your business by offering bad credit equipment financing.
Bad Credit Equipment Financing for Growing Businesses
Equipment financing are short-term loans (around 3-5 years) made to companies specifically to purchase the equipment needed for their operations. Equipment financing is a collateral loan, which means that the equipment you bought could be repossessed if you default on your payments. Since the loan is released with collateral, lending companies view it as low risk and may offer a lower interest rate compared to a standard loan.
To qualify for an equipment loan, one must have a credit score of at least 600, have been in business for at least 11 months, and generate around $100,000 in income. If you have bad credit but meet the other two requirements, there is still a chance you could get financing. It really depends on the lender’s assessment of your financial situation.
Equipment financing is an alternative for start-ups and small businesses for growth and development, especially for those who do not have enough capital to finance their purchase. And if you have poor to bad credit, receiving equipment financing gives you the opportunity to improve your credit score.
How to improve your chances of being approved for equipment financing despite bad credit
You can increase your chances of getting approved for equipment financing. By finding ways to improve your creditworthiness and strengthen your application to lenders, there’s a good chance that loan companies will consider your loan application. Below are ways to strengthen your application.
1. Apply with a co-signer with good credit standing. Lenders may consider your application if you are applying with someone who has a better credit standing. The cosigner can guarantee the loan considering that the consignor has the same obligations as the borrower.
2. Submit other assets as collateral. If you have other assets, such as other types of equipment or even real estate, you can offer them as collateral. Strengthen your application to guarantee the loan.
3. Larger down payments. Do you have enough cash to put down as a down payment to significantly reduce your total loan amount? If you can put up larger down payments, lenders may consider you a candidate for poor credit equipment financing.
4. Proof to show that the business is growing strongly. Provide documents such as bank statements showing good income for the last few months. Lenders like to see a growing stable business, so it is essential to provide income statements and other documents to support your claim.
5. Seek professional help. With bad credit, lenders will make it difficult for you to get a loan. They may even deny the loan immediately after checking your credit score. But with the right assistance from loan experts, you can increase your chances of getting the right lender who can look beyond your bad credit.