Home » Business equipment financing bad credit: Tips and 5 Best Co.

Business equipment financing bad credit: Tips and 5 Best Co.

What is Equipment Financing?

Equipment financing is the act of borrowing capital in order to pay for a new or used piece of equipment. This helps business owners get the business equipment they need, without having to pay out of pocket. Borrowing capital can save business owners from cash-flow disruptions that come from paying with working capital. Instead of paying upfront, business owners can pay off their equipment in installments, over time. Together with Trump’s new equipment tax codes in effect, you could save thousands of dollars each year via borrowing. Additionally, equipment financing requires no collateral to be leveraged on behalf of the business owner. Instead, the equipment itself can be leveraged as collateral, protecting your assets.

6 Tips To Get Equipment Financing With Bad Credit

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 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. 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. Offering Additional Collateral

When 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. 

3. Increasing Your Down Payment

Another way to make your application for a small business loan 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 close 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.

4. Updating 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. 

5. Getting 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 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. 

6. Applying 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, 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.

5 Best Companies for Equipment Financing With Bad Credit for 2021

In evaluating the best equipment financing options for borrowers with bad credit, we looked at lender minimum requirements, cost of borrowing, terms, application process, customer service, and funding speed. Our primary considerations were the type of financing available for borrowers and lender minimum requirements. We excluded companies with strict guidelines.

National Business Capital: Best Overall Rates and Terms

National Business Capital
Maximum Loan Amount$5 millionPayment FrequencyMonthly
Minimum Credit ScoreNoneRepayment TermUp to 5 years
Annual Percentage Rate (APR) Range8% to 25%Annual Revenue$120,000
Down Payment20%+Time in Business6 months
Visit National Business Capital

Why We Like National Business Capital: National Business Capital will consider any business, regardless of credit score, provided the business has at least 6 months of continuous operation and generates $120,000 in sales annually. It will provide equipment financing up to $5 million, either through loan or lease, and finance out to 5 years. Your rate is highly dependent on your credit score, and a lower credit score will likely mean a higher cost of borrowing or leasing.

Smarter Finance USA: Best Option for Smaller Businesses

Smarter Finance USA
Maximum Loan Amount$250,000Payment FrequencyWeekly or monthly
Minimum Credit Score550Repayment TermUp to 7 years
APR Range6% to 30%Annual RevenueN/A
Down Payment20% to 50%Time in BusinessNo minimum
Visit Smarter Finance USA

Why We Like Smarter Finance USA: Borrowers who need between $2,500 to $250,000 of financing and have at least a 550 credit score should consider Smarter Finance USA. Its maximum makes it a good fit for smaller businesses. Down payment requirements may reach as high as 50%, depending on your credit and business history; however, Smarter Finance USA will provide financing to startups.

BlueVine: Best for Higher-risk Equipment

BlueVine Logo
Maximum Loan Amount$250,000Payment FrequencyWeekly
Minimum Credit Score600Repayment TermUp to 12 months
APR Range5% to 30%Annual Revenue$120,000
Down PaymentNoneTime in Business6 months
Visit BlueVine

Why We Like BlueVine: As opposed to placing a lien on equipment, which is common in equipment financing, BlueVine places a blanket Uniform Commercial Code (UCC) lien on businesses it lends to. This provides a financing option to those businesses who may work in higher-risk industries or have equipment with a short useful life. BlueVine will provide up to $250,000 in funding, with weekly repayments. Note that any financing will need to be repaid within a year.

eLease: Best for Startups With Bad Credit

eLease
Maximum Loan Amount$500,000Payment FrequencyMonthly
Minimum Credit Score500Repayment TermUp to 60 months
APR Range6% to 35%Annual RevenueNone
Down Payment10% to 50%Time in BusinessNone
Visit eLease

Why We Like eLease: eLease offers equipment leases up to $500,000, with terms of up to 5 years. eLease is a viable option for businesses with bad credit or minimal cash, given that there is no minimum revenue requirement and business owners only need a credit score of 500 to qualify. Each application is reviewed on a case-by-case basis.

Crestmont Capital: Best for Businesses Seeking Longer Repayment Terms

Crestmont Capital
Maximum Loan Amount$2 millionPayment FrequencyMonthly
Minimum Credit Score500Repayment TermUp to 10 years
APR Range6% to 20%Annual Revenue$100,000
Down Payment10% to 50%Time in BusinessNone
Visit Crestmont Capital

Why We Like Crestmont Capital: Crestmont Capital provides equipment loans and leases of up to $2 million and will offer to finance to those with bad credit. While the majority of its equipment loans and leases have a term of up to 5 years, it will occasionally finance up to 10 years if the equipment has a long effective use life.

Conclusion

Any of the five lenders we have mentioned are good choices for those with bad credit who are seeking equipment financing. If they have low credit scores, business owners may have to contend with higher interest rates and additional fees to borrow. However, these lenders will work to accommodate you and provide a lifeline to getting equipment financing.

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