Obtaining equipment for a business is expensive, which is why many business owners use equipment leases and equipment loans to purchase computers, cars, machines, as well as heavy equipment. Prior to you can get financing for your equipment, however, you need to recognize and evaluate your business. You should know what you need. Unfortunately, even if you know just what you need, it might still be challenging to secure financing for equipment with a bad credit history.
What is Equipment Financing?
Equipment funding allows you to obtain the equipment you need for your business without dipping right into your cash money reserves. Equipment financing is commonly offered with the type of leases and loans.
The terms for equipment loans can differ, but they are the same as traditional loans when you get to the fine details. These loans allow you to make a downpayment on the equipment and after that use the loan to cover the rest of the cost. You then repay the balance of the loan-- with a rate of interest-- upon an agreed schedule. When the money is repaid, the equipment is yours, and also you are the sole proprietor.
Lenders might occasionally treat the purchased equipment as collateral for the loan. They could take the equipment if you fail to pay back the loan as agreed. Some lenders require personal assurances from you. This all comes down to the lender, so make sure you understand what you are getting in for before signing anything as well as securing a loan.
What is Equipment Leasing?
Equipment leasing is an additional option for financing equipment purchases. These plans are suitable for those with bad credit. Leasing equipment means you don't have to make a downpayment on it. Rather, you pay a set amount of money every month as agreed with the provider. You can buy the equipment if you want when the lease is over.
Equipment leases are much less risky than loans therefore are much better for those with bad credit. The owner still has the equipment so they will not have much of a loss if you fail to make the payment. Obviously, owners will still consider your credit score before leasing your equipment, yet it isn't as big a consideration as it would have or else been.
Equipment leasing sounds like an excellent option for business owners without as much cash. However, you should understand that leasing equipment typically costs a lot more in the long term compared to purchasing.
How Does Bad Credit Affect Equipment Funding?
Bad credit affects equipment leases and loans as it affects every little thing else. Banks aren't interested in lending money to people with bad credit scores. Even a credit score of less than 600 can cut you off from a lot of financial products.
Considering that banks do not like to lease equipment or lend money to people with scores under 600, it can be challenging for a business owner in this position to get the equipment they need. Capital and cash advance options are often more difficult and expensive to acquire. You may be unable to take that method at all if you are in a hurry to get the equipment you need. Acquiring equipment in full out of pocket will also place significant damage to your cash flow. So, how can you secure bad credit equipment finance? Well, there are some options.
How to Secure an Equipment Lease With Bad Credit?
Get a Cosigner
Your first option is to get a cosigner for the lease or loan. The cosigner will be somebody that will include their name on the application and lease. They will become legally in charge of paying your debt if you fail to do so. The cosigner requires to be someone with a better credit score than you. Finding somebody to cosign the loan is usually the easiest way to secure a lease with bad credit. Just remember that the cosigner is just as responsible for the loan as you are. They trust you, so do what you can to prevent them from needing to shoulder your financial debt.
Make a Larger Downpayment
Making an extra significant downpayment is one more way to save money on your lease. If you are having difficulty securing a cosigner for your loan, or don't want to risk another person's finances after that making a larger downpayment on the lease can help push the deal through. This implies that you need to advance a significant downpayment to offset the risk, however. Alternative lenders can ask for upwards of 20% of the total cost as a downpayment prior to accepting the loan.
Lastly, there is the option of using personal collateral for the loan. Using collateral is frequently viewed as the last hope for companies. Using collateral does mean that your application is likely to be approved. You can put up residential property you own as collateral towards the equipment lease. If you really need the equipment-- and the money to acquire it-- after that collateral can be the way to go.
Bear in mind there is no other way to guarantee approval. Prevent companies that promise you this. If you see something like "Guaranteed authorization" in advertising and marketing approval, remember this is false. Please do not fall for false claims like this as they can do additional damages to your credit score instead of helping. These businesses can in fact lower your credit score even more by running them. Companies that make these types of promises commonly use them as lures and change the deal on you. Do your due diligence as well as try to find testimonies and reviews of loan companies when securing financing-- especially with bad credit equipment financing.
We here at Lease Funders understand that you need equipment loans and equipment leases. Let our 21 years of experience in financing bad credit help you to get the equipment you need! Contact us today and talk to our experts for more information and see what we can do for you.