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There are times when businesses face difficulties with their finances which result in bad credit. A bad credit history limits your chances of approval for equipment finance even if the equipment helps in improving business profits.
Traditional lending institutions such as banks may refuse to grant you the loan you need. But there are specialized loan companies that can see beyond your bad credit. These lending institutions can give you a second chance to avail yourself of the equipment you need to grow your business by offering bad credit equipment finance.
Bad Credit Equipment Finance for Growing Businesses
Equipment financing is short-term loans (approximately 3-5 years) that are extended to businesses specifically to purchase equipment needed for its operations. Equipment financing is a collateralized loan which means that the equipment you have purchased can be repossessed in the event of a default in payment. Since the loan is issued with collateral, lending companies see it as a lower risk and may offer a lower interest rate than a standard loan.
To qualify for an equipment loan, one must have a credit score of at least 600, be in business for at least 11 months, and generate approximately $100,000 in revenue. If you have bad credit but meet the other two requirements, there is still a chance for you to get finance. It really depends on the lender’s assessment of your financial position.
Equipment financing is an option for the growth and development of start-ups and small businesses, especially those that do not have sufficient capital to finance their purchase. And if your credit score is from bad to worse, providing equipment financing gives you a chance to improve your credit score.
How To Improve Your Chances Of Approval For Equipment Financing Despite Bad Credit
You can increase your chances of getting approved for equipment finance. By creating ways to improve your credit standing and strengthening your applications to lenders, there is a great chance that loan companies will consider your loan application. Below are the ways to strengthen your application.
1. Apply with a cosigner with good credit. Lenders may consider your application if you are applying with someone who has a better credit standing. The cosigner may provide security for the loan, given that the sender has the same obligations as the borrower.
2. Present other assets for collateral. If you have other assets such as other types of equipment or even real estate assets, you can offer that as collateral. This strengthens your application to secure the loan.
3. Large down payment. Do you have enough cash as a down payment to significantly reduce your total loan amount? Lenders may consider you a candidate for bad credit equipment finance if you are able to offer a larger down payment.
4. Evidence to show that the business is going strong. Provide documents such as bank statements showing good income for the previous months. Lenders like to see a growing stable business, therefore, it is essential to provide income statements and other documents to support your claim.
5. Get professional help. With bad credit, lenders will have a tough time getting you a loan. They may even deny the loan immediately after checking your credit score. But with the proper help from loan experts, you can increase your chances of finding the right lender who can see beyond your bad credit.
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