There are times when companies struggle with their finances, leading to bad credit. A poor credit history limits your chances of getting approval to finance equipment, regardless of whether the equipment helps improve business profits.
Traditional credit institutions such as banks can deny you the loan you need. But there are specialized lending companies that can look beyond your bad credit. These credit institutions can give you a second chance to take advantage of the equipment you need to grow your business by offering poor loan financing.
Poor credit equipment financing for growing companies
Equipment financing consists of short-term loans (about 3-5 years) granted to companies specifically for the purchase of the equipment necessary for their operation. Equipment financing is a collateral loan, which means that the equipment you purchased can be repossessed in case payments default. Because the loan is released with a security, lending companies consider it a 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, be in business for at least 11 months, and generate around $100,000 in revenue. If you have bad credit but meet the other two requirements, there is still a chance that you will seek 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 a bad to bad credit score, you’ll get equipment financing that will give you the opportunity to improve your credit score.
How to improve your chances of obtaining approval for device financing despite poor credit ratings
You can increase your chances of getting approval for equipment financing. By finding ways to improve your credit score and strengthen your application to lenders, there’s a fair chance that lending companies will consider your loan application. Below are ways to strengthen your application.
1. Apply to a co-signer with a good credit rating. Lenders may consider your application if you’re applying to someone who has a better credit rating. The co-signer can provide collateral for the loan, considering that the consignor has the same obligations as the borrower.
2. Present other assets for collateral. If you have other assets such as other types of equipment or even real estate, you can offer these as collateral. It strengthens your application to secure the loan.
3. Higher down payments. Do you have enough cash to make as a down payment to significantly reduce your total loan amount? If you’re able to make 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 that show good sales for the last few months. Lenders want to see a growing steady business, so it’s important to provide income statements and other documents to back up your claim.
5. Seek professional help. With bad credit, lenders will make it hard for you to get a loan. You can even decline the loan immediately after checking your credit score. But with the right support from credit experts, you can increase your chance of getting the right lender who can look beyond your bad credit.
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Wendy is now a financial analyst and writer. Wendy has been writing about finance and personal finance since she was a sophomore in high school. She has also been writing for several online publications and published in The Huffington Post, and Forbes Woman.
Wendy is a credentialed financial analyst and has experience working with financial institutions and businesses. Wendy is also a certified financial planner. When Wendy's not writing, she enjoys tending to her many plants, watching TV, and spending time with her family.
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