Getting new equipment or upgrading old ones is extremely important to smoothly perform your daily tasks and achieve your business goals. Although there are numerous sources for equipment financing for small businesses, getting one with bad credit is somehow difficult.
Business owners with low credit scores will be viewed as risky and lenders are often reluctant to lend to such candidates.
Though it can be challenging and time-consuming to seek equipment financing with bad credit, but you do have options.
Read on to learn everything you need to know about how to get equipment financing with bad credit.
What is Equipment Financing?
Equipment financing is a kind of loan for business owners where you are given a lump sum of cash to purchase new or upgrading old equipment. It is different from other forms of small business financing because it is strictly for purchasing physical assets.
With an equipment loan, you don’t need to put collateral since the asset purchased acts as a security or collateral. If you default on your loan, the lender can repossess the equipment to cover the outstanding amount of the loan. The best thing about this loan is that it helps you finance up to 100% of the new or old equipment for your business.
Qualifications Requirements for Equipment Financing With Bad Credit
The qualification requirements for equipment financing vary from lender to lender. If you are planning to apply for equipment financing for small businesses, you need to fulfill the following requirements.
- Must be in operation for 3 months for alternative lenders and 1 year for banks.
- Annual revenue must be between $25,000 to $150,000.
- Should be a minimum credit score of 500 for alternative lenders and 600 for banks.
While these are some of the most common requirements when getting equipment financing for your small business, it’s not the only thing considered when making approval decisions. Depending on the lender, many different things can affect your eligibility. So, it’s vital to discuss your requirements with your lender and determine what works best for your business.
How Bad Credit Can Affect Equipment Financing?
Since the equipment purchased will be used as collateral, it is easier to obtain an equipment loan than many of its financing counterparts.
Where having bad credit affects you when it comes to an equipment loan for small businesses is with the fees and interest rate. You will most likely get a higher APR than business owners who have ideal credit scores.
Options to Getting Equipment Financing With Bad Credit
Traditional banks and alternative lenders are the two most common places from where you get the capital to purchase the equipment. Whether you need to purchase a vehicle for a trucking business, an oven for a restaurant, or an advanced tool for a farming business, your bank or alternative lender may be able to get you the necessary funding.
The amount and terms you qualify for will depend on various factors such as the value of your assets, business type, industry, credit, cash flow, etc.
Best Way to Get Equipment Financing For Small Business
Applying for equipment financing through an online funding marketplace is the smartest idea. These marketplaces will help you find and compare a variety of bad credit equipment loan offers so you can choose one that best fits your current financial needs and budget.
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