While many lenders have programs that make loans to businesses without doing a credit check, equipment financing is not one of them. However, that doesn’t mean you can’t find a financing option that fits your particular circumstances to buy the equipment you need to run and grow your company.

Numerous lenders will work with business owners with less-than-average credit scores. They each use different qualification criteria to put together loans with acceptable risk levels, meaning a small business owner can make several applications and select the best offer. Being turned down by one lender doesn’t prevent another lender from granting approval. Let’s check out the process.

What is Equipment Financing?

Equipment financing is used toward the purchase of new or used equipment, such as vehicles, machinery, heavy construction equipment and even computers, software or office equipment. Repayment terms match the useful life of the equipment being financed.

Depending on the borrower’s situation, down payments can vary from 0 up to 30% or 40% of the equipment’s cost; interest rates will range depending on the lender and the borrower’s qualifications. While most equipment loans start at $10,000 and go up, loan amounts can range from low thousands up to millions.

An important feature of equipment loans is that the financed equipment serves as collateral for the loan. Lenders like having the equipment as security for the loan in case of a default. This allows them to relax other qualification requirements, such as minimum credit scores and down payments.

Lenders prefer to finance “hard equipment” because this type of item retains value and is easier to sell if the item is repossessed in a loan default.

Different Types of Equipment Financing

Lenders prefer to finance “hard” equipment, such as heavy-duty trucks, excavators, backhoes and tractors. Hard equipment pieces usually have longer useful lives, hold value and are easier to sell if the lender has to repossess the equipment in case of loan default.

On the other hand, soft equipment items — such as computers, software, phone systems and office furniture — have shorter lifespans and depreciate more rapidly, reducing their value in the event of repossession. For these reasons, lenders will usually require higher down payments and offer shorter repayment terms for soft equipment.

Equipment Financing With Bad Credit

Lenders do not have a common set of qualification standards for equipment loans. Each lender has its own set of qualifications and considers each borrower’s situation on its merits.

So is it possible to get an equipment loan with bad credit? The short answer is “probably.”

Because lenders have their own qualification criteria, borrowers can apply to several lenders to find one that can work with the borrower’s unique situation.

The factors that each lender uses to make decisions and structure loans are as follows:

    • Revenues – While some lenders don’t have a minimum annual revenue requirement, others require at least $100,000 in annual revenues.
    • Years in Business – Two years is generally the minimum considered by lenders.
    • Credit Score – Getting a loan with a credit score less than 600 is difficult. In these cases, lenders will try to find other ways to strengthen the loan, such as requiring a higher down payment.
    • Down Payment – The amount of down payment can range from 0 up to 30% or 40%.
    • Interest Rates – Interest rates will reflect the degree of risk in a loan. Less risky loans get lower rates.
    • Personal Guarantee – Depending on the other qualifying factors for a loan,  a lender may or may not require a personal guarantee. Some lenders will only ask for the company’s obligation without additional outside guarantees.

Based on each borrower’s unique situation, lenders can use various combinations of these factors to draw up a loan agreement that will be acceptable to both parties.

You can’t entirely escape a credit check when applying for business funding, but some financing options weigh other factors.

Getting a Small Business Loan with No Credit Check

Obtaining financing for your small business without a credit check and a good payment history is difficult. Most lenders will require at least a soft credit check, several years in business and a history of solid revenues.

Nevertheless, numerous lenders do have business loans that offer no credit checks. Let’s take a look at these programs, review the qualifications and go over the pros and cons of each type of loan.

Several kinds of no credit check business loans are available from lenders with less strict qualifications than banks. These lenders offer the following types of financing:

Invoice Financing

Invoice financing makes advances up to a percentage of a company’s outstanding receivables that are due in less than 90 days. The loans are repaid according to the terms of the agreement. Advances are secured by the receivables.

This type of financing is based on the value and creditworthiness of the receivables rather than the borrower. The lender does not buy the invoices but takes them as collateral to secure the loan. Advances are from 85% to 100% of eligible invoices. Invoices over 90 days are not considered eligible and are deducted from the total availability.

Considering the discount rate and fees, the estimated APR can run from 10% to 80%. However, quick funding is a major benefit.

Customer invoices are paid directly to the borrower, who retains ownership of the receivables and maintains control of customer relationships.

Invoice Factoring

Unlike accounts receivable financing, invoice factoring occurs when the company sells its invoices to the lender — known as the factor — who takes ownership of the receivables. Customers then pay their invoices directly to the factor.

Most factors require a minimum volume of $30,000 per month, and the factor must approve the credit of each individual customer before agreeing to purchase the invoices.

Under a factoring arrangement, funds are advanced in two installments. The first advance is made upon presentation of the invoice to the factor. The second advance is when the customer pays the face value of the invoice; the factor deducts the fees and remits the balance to the borrower.

Invoice factoring has two parts: the advance percentage of the face value of the invoice and the discount rate or fee. The factor fee can range from 0.25% up to 1.5% per week, resulting in APRs of 13% to 70%.

An advantage of factoring is that you get your money immediately upon presentation of the invoice to the factor. Another is that you gain the collection experience of the factor in dealing with slow or past-due payments from customers.

When you factor or sell your invoices, you have to decide if you’re comfortable with the factor communicating directly with your customers, especially about late payments.

Purchase Order Financing

If a company receives a large purchase order that might strain its cash flow and credit limits with suppliers, purchase order financing could be the solution. This type of financing is only available to distributors, wholesalers and resellers who have a signed purchase order in hand from another business, and only finished goods will qualify. Any product that requires additional work or changes is not eligible.

The profit margin on the transaction must be at least 15%. Interest rates range from 1.8% to 6% per month.

No credit check is required because the loan is backed by the value of the confirmed purchase orders.

Lenders will usually advance 80% to 90% of the value of the purchase order depending on the borrower’s qualifications, the buyer’s creditworthiness and the supplier’s reputation for being able to fulfill the purchase order on a timely basis.

Merchant Cash Advances

If your business has a substantial amount of sales, merchant cash advances (MCAs) could be helpful. With this type of loan, the lender makes an advance and gets repaid by taking a percentage of each day’s sales. The lender does not conduct a credit check because repayment is based on future sales.

APRs for merchant advances are among the highest of no credit check loans. With factor rates of 1% to 1.5%.

Your Financing Options Without a Credit Check

Although getting a business loan or equipment financing without a credit check limits your options, there are lenders that offer financing not based on credit scores. These lenders focus more on asset-based financing, such as factoring receivables or the performance of the business, like merchant advances and revenue financing. Whatever your situation, you can probably find a lender willing to work with you.

 

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