Not all businesses will qualify for equipment financing.
There are programs available for most situations, though.
If you’ve been in business for one day, if you’ve had a bankruptcy in the past year, in some cases, you can still qualify for equipment financing.
In instances like this sometimes you may need down payments or collateral.
There are 4 basic types of qualifications for equipment financing:
Credit Based Equipment Finance
Credit based equipment financing is almost always less expensive than collateral based equipment financing.
What “credit based” means is that if you’ve got ok credit, in most cases you can finance your equipment.
If you have “fair” credit – meaning a credit score of 620-650 or so, and you’ve been in business for two or more years, and typically have some money in the bank, you won’t get the cheapest rates, but they won’t be outrageous.
As a rule of thumb, maybe plan on $760 per month per $25,000 of financing on a 5-year term (for $1 buyout).
With “a little better than credit (650-680 credit score) the rates get better. You’re looking at around $630 to $675 as a monthly payment on $1 buyouts and $600-650 per $25,000 of financing on a lease.
With good credit (over 680 credit score) rates get pretty reasonable. Plan on about $565-$585, sometime less, on $1 buyout and $530 to $550 per $25,000 of financing on a lease.
If you are new in business, programs are available if your credit is good, but financing will be more expensive.
Cash Flow Based Financing
If you have some credit challenges but run a strong business, your credit score may often be ignored.
Imagine you have a very low credit score and need funds to purchase $25,000 worth of equipment. If your business has revenues close to $25,000 per month, in many cases you can still get approved for financing.
Your payments will be significantly higher than if you had great credit in these cases, but the money is available to you.
We talk about payments to lease equipment for tough credit situations here.
Collateral Based Financing
You can be approved to finance equipment with almost any business or credit challenge if you can make a 50% down payment or offer collateral.
If, for example, you needed to finance that $25,000 piece of equipment and could offer $25,000 worth of machinery or vehicles as collateral, in the vast majority of cases you’d be approved.
There are two times we do find it impossible to get you approved.
- Open bankruptcy (discharged is ok)
- Open child support collections
Almost any other time, if you’ve got the down payment or collateral, a deal can be done.
Story Based Financing
If there is a good business case to lend to you, often your credit score can be ignored. Story lenders look for some sort of strength and don’t have a set “rule book.”
The rules are not set in stone, but in many cases tougher deals can be done without great credit or huge amounts of collateral.