Qualifying for equipment financing for small business can be tricky. Between your credit score, cash flow, and personal financial troubles, you could run into several obstacles when trying to qualify for financing.
There are a variety of programs for financing equipment that are available to you, even if your financial situation isn’t ideal to most lenders. Past bankruptcy, a low credit score, or also the fact that you haven’t been in business long won’t be a problem when you choose the right financing option.
There are four kinds of qualifications that you can meet when financing equipment and you can choose the best one for your financial situation.
Credit-Based Financing
As implied by the name, this equipment financing qualification is based on your credit score. Most of the time, this option won’t be as expensive as other financing options, as long as you have a good credit score.
To qualify for this, all you need is credit. If your credit score ranges between 620-650, you could expect to finance $25,000 worth of equipment for five years for about $760 a month, as long as you have money in the bank and have been in business for at least two years. A better credit score of 650-680 could improve the rates to $650 a month, and if your credit score is over 680, you will get the best rates at $550 a month.
While a new businesses startup can get credit based financing with a good credit score, rates will be high since they haven’t been in business for a lengthy amount of time.
Cash Flow Based Financing
This equipment financing qualification is excellent for those who don’t have a high credit score, as long as they do good business. Cash flow-based financing looks at the amount of money you bring in every month, as well as the money you have on hand. If your business is healthy, lenders won’t have a problem overlooking your credit score.
For instance, if you apply for financing for $25,000 worth of equipment and make $25,000 coming every month, you are more likely to get approved. Payments will be higher with this option, but it is an excellent alternative to credit-based financing.
Collateral Based Financing
With this qualification, you will more than likely be approved for financing as long as you can put down at least half of the amount of the cost of the equipment or have adequate collateral. When looking for equipment financing for $25,000 worth of machinery with this option, you should expect to make a down payment of $12,500 or offer $25,000 value of machinery you already own as collateral.
If you can provide this, you should be able to finance most of any equipment you need. The only instances where it is hard to get approved with this financing option is with open child support collections or open bankruptcy cases.
Story-Based Financing
When using story-based financing, lenders don’t focus on your credit score or collateral as much as they do the reason behind your funding. If you have a good business reason for needing equipment financing, they are more inclined to approve you because they look for strength in your business. There are no set rules for this qualification; it can vary lender-to-lender.
Qualifying for equipment financing isn’t hard! Knowing the different financing options available is the first step in obtaining the equipment you need. Once you know what qualifications benefit you, you can start the application process.
