How to Get Equipment Financing with Bad Credit Fast

Can I get equipment financing if I have bad credit? The short answer is yes! But the how is a little more complicated. Let’s dive into how your small business can get equipment purchased financed despite the bad credit you or your business may have.

Most small to mid-size businesses run into a situation where they need to purchase new or upgrade old equipment to help run the business process. Perhaps you’re a restaurant owner who needs to purchase a brick oven because you want to offer brick oven pizza, or you’re an established manufacturer with a broken down forklift and need to replace some equipment fast.

So, the next step is to figure out how to get money to purchase that equipment, but you are concerned your credit is not good enough to get equipment financing with bad credit. Do not fret because solutions do exist for business owners with bad credit.

Don’t assume you need great credit, or even good credit, for that matter, to be able to finance equipment for your business. Some existing and new products are available with owners with bad credit histories.

There are a couple of options available, but let’s get back to what equipment financing is, how it works, what are the terms and qualifications, and what are my chances of getting approved.

Equipment Leasing vs. Equipment Loans

Equipment leases are fixed-cost financing based on a factor rate like an auto lease. You get a fixed amount you are approved for, a fixed amount you have to pay back over a fixed period of time with a fixed monthly payment until the payback is paid back in full. There are no early payback discounts or principal and interest payments.

There are two types of leases capital and operating:

1. Fair Market Value (FMV) Lease: you make payments for a set term, and in the end, you can purchase at fair market value, or you must return the equipment.
2. $1 Buyout leases: you have a payment over a fixed term, and in the end, you can purchase the equipment for $1 and own it outright.

Qualifications

• Personal credit scores above 650
• Equipment must be new and from a dealer, manufacturer, retailer, or distributor
• No financial statements required

Terms

• 2 to 7 years
• Factor rate costs ranges from 1.10 to 1.45

Pros and Cons

• Fast approvals (processing times the same day to 24 hrs.)
• More lenient with personal credit
• Costs more than equipment loans
• No early pay discounts

Equipment Loans are based on principle and interest and have a fixed amount you are approved for but are based on a principal and interest rate over a fixed term meaning that you are only responsible for the interest on the outstanding principal, so paying off early is beneficial as you are only paying principal and interest up to the payoff, therefore providing the ability to save on interest costs.

Qualifications

• Personal credit (above 680 prefer 720 or greater)
• Equipment must be new and from a dealer, manufacturer, retailer, or distributor
• Minimum time in business 3 years
• Financial statements required from the business (i.e., Tax Returns, Profit & Loss, Balance Sheets)

Terms

• 2 to 15 years
• Interest rates from treasury or prime rate + 0% to 2.75%

Pros and Cons

• Longer terms
• Lower rates and principal & Interest
• Only responsible for interest, so paying off early or more frequently can save money
• High credit and financial standards
• Minimum 3 years in business only
• Lower approval rates than leases

Documentation Required to Apply for Equipment Financing

When applying for equipment financing, there are various documents you'll need to provide to the lender to complete your application. These documents help the lender evaluate the creditworthiness of your business and determine whether you qualify for financing.

Equipment Lease Documentation Requirements:

• 1-page application filled out or online application
• The invoice with the description of equipment to be financed

Equipment Loans Documentation Requirements:

• 1-page Application either filled out or On-line
• The invoice with the description of equipment to be financed
• 6 months' bank statements
• 2 Most recent years' business and personal tax returns
• Year to date Profit & Loss and Balance Sheet, A/R, A/P

Some key points to improve credit:

• Pay your bills on time going forward
• Address bad debt and work out payment plans and resolve any outstanding issues like collections and judgments
• Remove any errors on credit reports
• Monitor your personal and Business Credit
• Separate business from personal debt
• Continue to open and maintain credit lines with vendors and suppliers
• Do not overextend your business with too many business loans or financing

Ways to improve your financials:

• Hire a great bookkeeper
• Use QuickBooks or other account software and update data weekly
• Keep great records on software so you can provide financial statements on demand in a timely fast fashion
• Manage and Monitor your monthly business bank account by using online banking
• Avoid Overdrafts, NSF or returned items in a business bank account
• Maintain at least 10% of your monthly gross deposits in your business bank account
• File your taxes early or on time
• Keep great records on software so you can provide financial statements on demand in a timely fast fashion

Alternatives to Equipment Leases or Equipment Loans

Ok, you have determined you can’t get an Equipment Lease or Equipment Loan, so what do you do now? Hope is not lost! Don’t give up! Insurgencies of alternative business financing products are now available that say Yes when equipment lease companies and banks say No!

Let’s explore 2 different ways to get equipment financing when Equipment Leasing and Equipment Loans are not an option.

Short-Term Business Loans

Short-Term Business loans have lower credit standards and allow for much lower credit scores than traditional equipment financing. They also don’t have the financial statement requirement you find with Equipment Loans. Let’s look at how Short-term business loans work, the terms and qualifications, and the chances of getting approved.

Qualifications

• All types of Personal credit (above 500 FICO regularly but prefer above 600 or greater)
• Equipment must be new and from a dealer, manufacturer, retailer, or distributor
• Minimum 6 months in business (longer time in business better the terms

Documentation to Apply

• 1-Page Application filled out or On-line
• 3 most recent months' bank statements
• No financial statements required

Terms

• 6 to 18 months
• Factor rates from 1.18 to 1.45%
• Monthly, Bi-monthly, weekly, or M-F Daily Payments

Pros and Cons

• Higher approval rates
• Accepts bad credit
• Less, minimal documentation required for approval
• Shorter terms
• Higher costs
• Short time in business (less than a year accepted)

Merchant Cash Advance or Business Cash Advance

Merchant Cash Advance (MCA’s) has lower credit standards and allow for much lower credit scores than traditional equipment financing. The MCA is also known as a Business Cash Advance (BCA). Small business owners can raise money quickly by selling a portion of their future debit card sales and credit card sales at a discount to a funder in exchange for immediate cash for the business.

The lender can determine the repayment method of the cash flow you receive, but it is typically automatically withdrawn as a percentage of your daily credit card and debit sales, or it is withdrawn from your daily deposits in your business bank account. This percentage is commonly referred to as a factor rate. MCAs or BCAs also don’t have the financial statement requirement you find with Equipment Loans. Let’s look at how Merchant Cash Advances work, the terms and qualifications, and my chances of getting approved.

Qualifications

• All types of Personal credit (above 500 FICO regularly but prefer above 600 or greater)
• Equipment must be new and from a dealer, manufacturer, retailer, or distributor
• Minimum 6 months in business (longer time in business better the terms

Documentation to Apply

• 1-Page Application filled out or On-line
• 3 most recent months' bank statements
• 3 most recent months' merchant processing statements(if applicable)
• No financial statements required

Terms

• Estimated time to repay 6 to 18 months
• Factor rates from 1.18% to 1.45%
• Fixed Percentage of sales splits for Merchant Cash Advance or Monthly, Bi-monthly, weekly, or M-F Daily Payments for Business Cash Advance

Pros and Cons

• Higher approval rates
• Accepts bad credit
• Short time in business (less than a year accepted)
• Less, minimal documentation required for approval
• Shorter time to repay
• Higher costs
• Short time in business (less than a year accepted)

Final Thoughts

Just because you have bad credit doesn’t mean you can’t finance equipment, think outside the box.

As with all types of loans and financing, it’s important to take the time to get educated about what business financing products are available to solve your business financing needs. Stop and write a list of the products you were approved for, the terms, and what best works for you and your business.

There’s no doubt that you may have fewer choices if you, as the business owner, have bad credit, but fewer choices don't mean a lack of choices. Getting equipment financed is possible even if you have bad credit.

We are saying to explore those alternative options, weigh the pros and cons of your choices, and consider that against the value of purchasing the new equipment for your business in terms of future revenue.