Obtaining bad credit equipment financing is not impossible. However, just as with any other type of financing, if you have bad credit, you may need to adjust your expectations and put in some extra effort to get approved.
Consider researching lenders before you need loan funds, and allow yourself enough time to carefully prepare your equipment financing application. These eight suggestions can help you maximize your chances of growing your business with the right equipment.
1. Begin with Existing Banking Relationships
Established businesses may begin their search for equipment financing with a bank or lender with whom they already have a relationship. Even if they are looking for poor credit equipment financing, potential borrowers may begin their search at an institution with which they already have a relationship. Depending on the financial institution, there may be programs that provide existing customers with rate discounts or other benefits. This may not help businesses looking for startup equipment financing with bad credit (there are other startup loan alternatives to consider), but it can be a starting point for those who already have a track record.
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2. Consider Leasing Equipment
Another option for getting the equipment you need for your business is to lease it rather than purchase it outright with a business loan. While an equipment loan may require a significant down payment, a lease may allow you to finance the entire cost. You may also be able to include some soft costs, such as delivery fees or taxes, in that figure.
When leasing equipment, keep in mind the interest rate and other requirements. Some leases may call for a maintenance package or a high-interest rate. Because of these fees and additional costs, leasing equipment can sometimes be more expensive than purchasing it.
3. Providing Additional Support
Consider offering additional collateral when applying for equipment financing with bad credit. Lenders may require a 20% down payment. In most cases, the down payment, along with the value of the equipment, is sufficient collateral to satisfy the lender. However, equipment financing for people with bad credit may have more stringent requirements. Some lenders may accept additional collateral, such as real estate, to help secure the loan.
4. Increasing Your Deposit
Making a larger down payment is another way to make your application for a small business loan more appealing to lenders. This strategy may only work for companies with large cash reserves. However, it may be a workaround for obtaining equipment financing with bad credit. Furthermore, a higher down payment results in a lower loan balance. This could result in a lower monthly payment and less interest paid over the loan’s life. Examine the loan terms, fees, and interest rates carefully to see how a larger down payment might affect the overall cost of your loan. While not every business will be able to pull this off, those who can benefit.
5. Making Changes to Your Business Plan
Depending on the lender, you may be required to submit a business plan with your application. A solid business plan can highlight your business acumen and assist you in demonstrating how the equipment purchase will help the company grow.
A business plan includes several components, such as a company overview and structure, market analysis, operations, and financial projections. Provide detailed data to demonstrate to the lender that your product or service has a market need and that you are successfully managing both operations and business cash flow. If you’re applying to a traditional bank or lender, you could also include a section outlining your funding request.