You’ve made the decision that you need a business loan for your next equipment purchase. (Still not sure if the loan should be business or personal? Read more on that here). But what exactly do you need to do to prepare for that equipment finance loan?
Lenders collect a wide range of information when determining your eligibility for an equipment finance loan. They center on four key factors: time in business, credit, type of industry, and equipment type and usage.
Time in business
Time in business is a key factor. If you’ve been in business for less than two years, you are generally put in a different category than more mature businesses, who often secure financing with no money down and a simple credit application. In the case of a newer business, you may be required to put money down, show lender statements, and submit a write up about your business to secure financing. Lenders will also often look at your personal credit to determine appropriate financing terms.
Credit
For smaller businesses, most lenders will review both your business and personal credit history. The longer you have been in business, the more the lender will weigh your business credit history over personal credit history. But what are they looking for within that credit? Generally, lenders like to see established credit, a comparable loan amount financed in the past, and good payment history.
Industry
Every industry comes with its own risks and challenges. All are classified with a Standard Industrial Classification (SIC) code, which helps the lender determine the measure of risk in your industry. In low-risk industries, like manufacturing or construction, you can often finance higher amounts at lower rates with better terms. High-risk industries, like restaurants or over-the-road trucking, can see larger down payments, shorter terms, and lower finance amounts.
Equipment
The type of equipment you are looking to purchase, and how it will be used, is often heavily considered by the lender. If the equipment is used to make the business money, it can be looked at as a necessity, which contributes to better financing and an easier approval process. If the equipment does not directly contribute to profit, lenders will sometimes ask for more money down, higher rates, or shorter terms.
The equipment financing landscape is never black and white. That’s why Priority One works with you and your unique business circumstances to leverage the best lender for your needs.
