Per the Equipment Leasing and Financing Association, “In 2019, a projected $1.8 trillion was invested by U.S. businesses, nonprofits and government agencies in plant, equipment and software. Approximately 50%, or $900 billion of that investment, was financed through loans, leases and lines of credit. America's equipment finance companies are the source of such financing, providing access to capital”. With so many equipment financing options available, how will you know which equipment financing lender is most likely to approve your application? Here are some things to think about when seeking approval for your next equipment financing transaction.
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What is qualifying criteria?
When you apply for equipment financing, lenders ask questions and check if a business is eligible for a loan. Many traditional lenders have strict credit criteria to determine whether to approve your application.
How the process generally works with traditional lenders:
- Standard questions are asked and put into an application.
- Your application is typically processed by a computer or as part of a scoring model.
- Depending on the results of the computer or scoring model, you are approved or denied and the $ amount, terms and conditions of your financing are granted based on the lender’s credit scoring model.
Traditional lenders routinely decline applications that do not conform to their credit model. At Beacon, we still review the same criteria as traditional lenders, but our credit window is typically wider in the core markets we serve. While other lenders stop at credit scores, our specialization in several key markets allows us to say “yes” to more businesses when they apply for equipment financing.
Let’s take a minute to compare how Beacon Funding’s credit criteria may be different than the traditional lender.
5 Common Criteria Considered for an Equipment Financing Approval
Here are five common criteria and how Beacon Funding and traditional lenders may view them differently:
Personal Pay History:
Personal credit history is an important factor reviewed by all lenders, even for equipment financing. How a small business owner pays their personal obligations provides good insight into how they may also pay their business obligations. Common measures of personal pay history often include:
At Beacon Funding, we too review your personal pay history. However, we also look at other criteria such as the value of the equipment you are financing. Therefore, if you do not have a perfect pay history, we may still say yes to your application as long as we are comfortable with the value of the collateral. By being an expert in certain industries and asset types, we can still get you approved when other traditional lenders cannot.
Business Pay History:
Business credit focuses on how your company has historically made payments on their business loans, leases, and other obligations. Common measures of business pay history may include:
Similar to personal credit, Beacon Funding also reviews your business’ past corporate pay history to assess how you may repay our lease/loan. However, our niche expertise allows us to see value in the underlying equipment even when your corporate pay history is less than perfect. This allow us to approve +7 out of 10 business applications in our core niche markets.
Most banks are not asset-based lenders. In other words, their credit underwriting process puts very little emphasis on the underlying collateral. Alternatively, traditional lender credit models put much more importance on personal and business credit scores and pay history. As a result, traditional lenders often decline unknown, used or high-mileage equipment when the applicant does not have strong personal and/or business credit and pay history.
As discussed above, Beacon Funding’s strong equipment knowledge is a true competitive advantage, allowing us to approve applications for businesses in our core markets. Our strong understanding of equipment values allows us to say yes even when other areas of the credit applications may be blemished. Our equipment expertise may also allow us to be more competitive than bank financing when working with stronger credit businesses seeking to acquire equipment in our comfort zone. Finally, our strong industry asset knowledge allows Beacon Funding to approve a wider variety of used equipment and high-mileage equipment financing applications.
Banks oftentimes want to see a long business operating history with financial success in order to approve your business for new equipment financing. Their logic: If you ran your business successfully for the past 10 years, it is very likely your success will continue for the duration necessary to repay your equipment lease or loan.
What happens if you don’t have a long-standing business operating history? How do you obtain equipment financing for the first time? Beacon Funding works with both start-ups and established businesses. So, how does Beacon Funding get comfortable providing a credit approval to a new business? You guessed it… by being an expert on the values of the equipment you are looking to finance. As explained throughout this discussion, our strong understanding and comfort with the equipment values in our core markets allow us to offer competitive equipment financing approvals even when an applicant business has little or no operating history.
Traditional lenders typically require strong business cash flow prior to approving an equipment financing transactions. To calculate cash flow, banks often require 2-3 years of business financial statements to ensure that an applicant’s business revenues are strong enough to pay all their current obligations in addition to the incremental monthly payment on the new equipment financing.
So what happens if a business doesn’t have 2-3 years of accountant prepared financial statements? Or what if you are a young business with limited revenues? In that case, traditional lenders may not be your best option for equipment financing. At Beacon Funding, we typically do not require accountant prepared financing statements or +2 years of operating history. Rather, we will simply ask you to provide us with your last 90 days of business banks statements. Your recent banking activity is typically all Beacon Funding will need to get comfortable with your business operations.
Let Beacon Funding approve your business for equipment financing!
Let Beacon Funding provide your business with an equipment financing approval like it has for tens of thousands of businesses throughout the United States just like yours. Our friendly and knowledgeable financing consultants will help your business acquire the equipment it needs in no time at all.