Getting the equipment your business needs to operate is crucial; getting the funding you need to purchase that equipment is just as important. Obtaining equipment financing is often the key to purchasing the revenue-generating equipment you need to make your small business run, and it offers distinct advantages. Some of those being that you typically don’t have to have a down payment to purchase your equipment and that collateral isn’t required since the equipment you’re purchasing serves as the collateral.
Before opting for equipment financing, however, it’s important to run down a checklist of what you’ll need to obtain it so that you’re one hundred percent ready to apply when the time comes.
Obtaining Equipment Financing: a Checklist of What You Need to Apply
✔ Good Credit Scores
Just like a bank loan or line of credit, you will need a fairly strong FICO score to obtain equipment financing. While the minimum score varies with each lender, the range is usually between 650-675. Some lenders may be willing to approve equipment financing with a score as low as 625 but will charge an exorbitant interest rate, so be careful.
The same thing goes with business credit scores. Most traditional banks and alternative lenders want to see a business credit score of at least 70 (from Dun & Bradstreet), but the required business credit score also varies from lender to lender.
✔ Minimum Annual Revenue
When you apply for equipment financing, the lenders will naturally want to know if you’re going to earn the revenue needed to pay the back. Therefore, certain lenders – traditional banks in particular – want to see how strong your business is by requiring a minimum annual revenue. The minimum revenue will vary by lender, with some requiring $250,000 and others requiring as little as $100,000.
✔ A Strong Balance Sheet
Many equipment finance lenders will want to know that your business is profitable in order to mitigate their own risk. Therefore, almost all equipment finance lenders will require you to show them your business’ balance sheet (profit and loss statements) for the past several years.
✔ A Plan for the Equipment
Again, lenders want to mitigate risk. Therefore, most equipment financing companies will require a plan on how the equipment you’re purchasing will generate revenue. Make sure you can explain, in detail, how the equipment you are seeking to purchase will increase your profits.
✔ Minimum Years in Business
Brand new startup businesses, unfortunately, cannot obtain equipment financing, as almost all equipment finance lenders require that your business be established. Some lenders may require at least three years in business, though others require only 1.
✔ Minimum Value of Equipment
The minimum value of the equipment you’re seeking to purchase with equipment financing varies – some lenders will require that the value be at least $25,000, while others may require it to be as little as $5,000. Keep in mind, the value of the equipment can significantly impact the interest rate.
Watch out for Bad Players!
Now that you have your checklist, it’s important that you watch out for the bad apples – financing companies and lenders seeking to gouge you with especially high interest rates or lock you into unreasonably expensive contracts. To make sure you are dealing with legitimate players dig into their reputations through online reviews.