Equipment financing can make a world of difference in your operations. You can upgrade your office to the latest technology, or you can secure a state-of-the-art machine that improves your efficiency ten-fold. However, if you have bad credit, you might find it difficult to secure an equipment loan. Lenders don’t often want to take the risk and loan out money to a business with a low credit score. Here are some ways you can improve your chances of approval.
Adjust Your Business Plan
A business plan is an often overlooked but essential piece of documentation. It details how your business is structured, what your products are, how you fit into your industry, and what your marketing plans are. Additionally, there’s a section that details your finances, including how your business has been doing and how you think a loan will help. This is the place to include an explanation about your credit score and how this loan could help you turn things around. Be as specific as possible with your financial plans, including how you plan to pay off the loan and how well your business has recently been doing.
Use Additional Collateral
Equipment loans typically have collateral built into the loan, where the equipment itself is used to back the loan. This means that if you default on your loan, the lender can take back that equipment. However, if you want to improve your chances of approval, you could offer additional collateral. If you have valuable personal or business assets, such as property or other equipment, consider listing them as potential collateral.
Have a Cosigner
A cosigner greatly reduces the risk for lenders. If you default on a loan, they can turn to your cosigner to fulfill the debt. Your cosigner can’t just be anyone, though. Make sure they have good credit to offset your score.
Make a Substantial Down Payment
Down payments aren’t always required for equipment loans, but they can certainly help. If you have enough working capital to pay for a chunk of the equipment upfront, lenders would be far more likely to approve your loan and offer you better terms, even with poor credit. This way, they get money straight away.
Don’t let bad credit prohibit you from using equipment financing. You can bolster your application with assets, a larger downpayment, a cosigner, or a solid business plan. Make the best case for yourself and alternative lenders may approve your application.