Equipment Loan FAQs for Small Businesses
Many small business owners think that heavy equipment is only for larger companies. They may shy away from equipment loans because they convince themselves that there’s no way they could afford the purchase or the payments. In a way, these business owners are disqualifying themselves from financing before even trying.
It’s like homeowners talking themselves out of buying a new home because they know their loan application is going to be rejected — before even filling out an application. Another comparison would be people avoiding going to the doctor because they don’t want a negative diagnosis, but without running any tests in the first place. All of those scenarios are crazy.
In reality, purchasing equipment and qualifying for equipment financing are both much easier than you may think. This article shows just how simple the process is and answers other questions you may have about equipment loans. What you learn may surprise you a lot.
What Are the Requirements for Equipment Financing?
First of all, what type of credit score do small business owners need to qualify for an equipment loan? The shocking answer is that your credit rating isn’t a major factor in approval. In fact, many small businesses have qualified despite bankruptcy issues in the past.
Many equipment financing programs also welcome startups, businesses that haven’t had time to build up a good credit score yet. Compared to traditional loans and mortgages, equipment loans are a breeze to qualify for.
The requirements in terms of business revenue are similarly accessible. You don’t need a huge amount of monthly or annual revenue. Good cash flow is important, but only as far as being able to make your monthly payment.
How Much Money Do You Need for a Down Payment?
What about down payments? The need for down payments varies by lender, type of equipment and size of loan. Some financing options offer 0% down. Others go as high as 20%–30% of the purchase price.
What makes equipment financing different is that the lender typically works together with your company to make the decision on down payment terms, interest rates and other factors. In other words, you can generally get the down payment that is comfortable for your business operations, not what some loan board thinks is best.
Some business owners prefer a larger down payment because it means smaller monthly payments. On the other hand, startups generally go with the 0% down option and make slightly larger monthly payments. The choice is always yours.