The time has come for your business to make some equipment purchases or upgrades in order to grow your business. You’ve compared equipment makes and models and found exactly what you need for your business. Now the next step is equipment financing. Equipment Financing is used by many businesses to acquire the equipment they need to run their day-to-day operations. This is largely due to the numerous benefits and easy process that equipment leasing offers when compared to other options such as cash purchases and bank loans. Research shows that an increasing number of small businesses are now opting to lease a lot of their equipment rather than making a cash purchase. Why do they do this? The answer is simple – they don’t want to tie up their money by buying the equipment outright. They prefer to save their cash for unforeseen expenses, payroll, and supplies. So how does a business increase their chances of getting approved?
All new equipment financing or leasing requests start with a credit application. When completing the application, be as specific and accurate as possible. For example, when asked what industry you are in, don’t just use a generic term for your industry. Instead say something that better explains what you do such as landscape design and construction, carpenter, cosmetic dentistry, property maintenance, physiotherapist or yoga instructor, etc. You will also want to make sure not to leave any relevant fields on the application blank. Surprisingly, this happens more often than you would think and makes up a large portion of refusals or time delays in processing applications.
It is also important on the application to accurately detail the equipment and supplier as best as possible. If the lender knows or can easily research the equipment dealer selling the equipment, it provides a level of comfort. For the equipment, it helps the lender understand the equipment you are requesting and relate it to your business activities to ensure it is historically consistent with similar businesses. If the equipment is used, it is also important to outline the year, make, model, and hours to help the lender evaluate accordingly.
For new businesses that haven’t established any sort of credit, providing a business plan, or background information with your related experience to the business will make a lender feel more comfortable about the future success of your business and ultimately the return on their investment. The more comfortable a lender is with your plan, the better chance you have of getting approved. This has also been coined “story lending”. Tell the story about you, your background, and your business and your plans to make everything work.
For established businesses, understanding the background and the story is important if you are looking to grow your business with larger equipment purchases or equipment that on the surface may seem inconsistent with your type of business operation. It allows the lender to have a better understanding of the bigger picture of the business and how it all ties in together. The story also helps the lender understand any issues that may be present with the business. For example, if the business is changing their service offerings due to economic opportunities or stresses the lender will be able to follow the development of the business and how the new equipment financing request makes sense.
A credit check is standard procedure for any sort of financing. It is to your benefit to pay off high balances and reduce your reliance on credit lines before submitting your application. For the debt that can’t be paid off in advance of the application being submitted, ensure you are making your payments on time. By paying your current loans as agreed, it will show the lender they can trust you to make your payments regularly and on time. If you have had credit issues in the past, you are still likely to be able to be approved, its just a matter of how you are handling those issues and the explanation surrounding the them.
In general, when a lender reviews a credit bureau, they are reviewing the following:
Look for a lender that has great rates, great customer service and a high approval ratio. You will be dealing with these people for a long time and potentially have multiple pieces of equipment financed through them so it is important that you choose one that will treat you right. Some companies will also have flexible financing options based on individual businesses rather than a cookie cutter one size fits all approach. Choosing the right lender is one of the most important steps. A good place to start your research is online to get some basic information on equipment financing and equipment leasing companies as well as through the equipment dealers themselves; equipment finance companies they are already partnered with.
Are you buying for a reputable and established equipment dealer who is selling quality equipment? This is important as the dealer knows the industry and can act as a consultant with respect to getting you in the right piece of equipment for your business and the jobs you get involved in. Service and warranty are also concerns when buying equipment as you cannot afford downtime in your business so buying from a dealer who supports their equipment, both new and used is important.
If you are considering purchasing used equipment and financing or leasing it, it can be done but there are some inherent risks you should be aware of. The largest is that if you finance the equipment and it doesn’t live up to your expectations, you are responsible to continue to make the payments on the equipment for the full term. Other considerations include useful life of equipment and service work; as you most likely will have to go and find a dealer to have this done for you. That being said, there can also be great value in purchasing used private sale equipment and it is just like anything, it pays to do your homework and understand what you are getting into.
From a lending perspective, lenders are typically more comfortable with dealer sales as they know there is layer of support that exists for the equipment and you the business owner (i.e. warranty, service, etc.). Purchasing from a dealer also eliminates many equipment condition, title or fraud issues that otherwise may come into play with private sale used equipment.