Struggling to get heavy equipment loans because of your bad credit?
Cash flow is the main source of a company’s continuous operation. Even the slightest issue with it could cause business operation to slow down or even put an end to the entire business.
One of the possible causes of negative cash flow is failing to deliver the quality and quantity promised to the customers.
The reason for this failure?
Lack of necessary equipment to do proper business. Acquiring the necessary equipment would give your business a significant boost in its production and the quality of the desired output.
But this, in turn, would require a lot of money and when you are already tumbling towards the bottom of the financial ladder - how can you get the equipment needed?
That’s why in this article, we will discuss how you could get heavy equipment loans even if you have a bad credit.
Heavy Equipment Loans For Businesses With Bad Credit
The minute your business starts declining, problems will begin to materialize.
Not only would an insufficient cash flow fail to save you, it will also affect every aspect of your business.
The only way to prevent this is by delivering the desired output to your clients. This can be done by acquiring the necessary equipment much needed by your business.
Don’t let bad credit be an obstacle to you saving your business. It’s never too late to do so. Let’s take a look why your business needs heavy equipment loans.
Why Your Business Needs Heavy Equipment Loans
Being the business owner means you have full control over your business. You are aware which aspects of your business will require attention and oftentimes attention means money.
Acquiring assets and equipment entails dispensing a lot of money from your pockets to purchase it. If your business involves expensive equipment such as heavy machinery, then there’s a chance that you will need a loan.
Equipment loans can be obtained in different ways: banks, private lenders, or even loan companies.
The first option in such cases would also be to turn to the banks, although this is not necessarily the easiest with only a 50% chance of approval.
To understand why this is so, let’s discuss the various reasons banks decline heavy equipment loan applications.
Reasons Why Banks Decline Heavy Equipment Loan Applications And Solutions
As a business owner with so much at stake, the safest route to obtaining a loan seems like the ideal scenario. While banks are without a doubt the safest option, there is no guarantee that heavy equipment loan applications will be approved.
That means you’ll go straight to a bank and submit a heavy equipment loan application.
Here are various factors that could affect your heavy equipment loan to a bank:
1. Poor Personal Credit
Many business owners have great businesses but they pay cash for everything so they don't have much credit history.
Poor personal credit is the main reason banks turn down applications. During the process of the heavy equipment loan application, your credit will be checked to see if there is a capability to repay the loan.
If you find your credit score to be below the requirements, here are some tips to work around it:
- Look for alternative business loan products before submitting an application, particularly those that will be given regardless of personal credit. Pick the best option for your business.
- Request a copy of your own credit report and look for errors. These can be disputed and once removed, will significantly improve the credit score.
- In the case of a derogatory credit, if it appears on the report for at least 7 years, it can be removed.
- If you have limited credit, take a time to consider what accounts you can add to your credit bureau.
2. Derogatory Business Credit
If your business has derogatory business credit, it will appear on your business credit report.
These items can come in the form of: state tax liens, federal tax liens, suits and judgments, and past due accounts and collections.
It’s therefore crucial to request a copy of your business credit report before applying for a loan. Once an incorrect information has been spotted, you can ask the credit bureau to make the necessary correction.
If the business credit agency cannot verify the derogatory credit, it may be removed from your file.
3. Insufficient Cash Flow
Banks may also deny heavy equipment loans due to insufficient or unacceptable cash flow to handle the new debt.
When this happens, you may talk to a lender and increase the chances of approval with these three tips:
- Openly discuss your current position.
- Request for other options that could get your loan approved, even for a lower amount than demanded.
- Ask for a starter line. This is a small line that lenders often offer to get the relationship started and requires a risk from their part. This is usually done with the hopes that you would become a long-term customer.
4. Not Enough Collateral
Heavy equipment loans may also be assets-based. This means that even if your business has good credit, the bank can still decline your application if you do not have enough assets on the books and they see your company as too small.
Many financial institutions are black and white and don't listen to your story about how you can afford the monthly payment.
If the solutions above don’t help you in getting a loan from a bank, check these ways on how to get financing or leasing when you have bad credit.
How To Get Funding When You Have Bad Credit
Bad credit construction equipment financing is a type of financing that provides the financial aid needed to buy equipment regardless of your credit score. This is offered mostly only by privately owned equipment lenders.
In order to preserve your credit, here are different ways to get a loan even if you have a bad credit.
Asset Based Lending
Asset based lending is a type of equipment loan where additional collateral is required to help secure equipment financing and mitigate the risk in a transaction.
With this type of loan, the typical credit guidelines are given more flexibility and loan applications could get approved even without the credit being reviewed.
This relies heavily on the collateral or asset of a company rather than its credit and is often used by businesses with a lot of assets, but have a poor cash flow.
Equipment Sale Leaseback
Equipment sale leaseback allows businesses to cash out their equipment in order to provide their business with better cash flow. This can also help in gaining several tax advantages.
During this transaction, the lender enters into an agreement with the borrower where the seller of an asset leases back the same asset from the purchaser. The lease arrangement is made immediately after the sale of the asset with the specified amount of the payments and the time period.
The seller of the asset will become the lessee and the purchaser becomes the lessor. This agreement is beneficial to business owners who need to use the cash that is used in an equipment investment for purchasing other investments.
Debt restructuring allows a company with cash flow problems and financial stress to lessen and renegotiate its delinquent debts. Doing so can improve or reinstate liquidity so the business can continue its operations. This type of leasing involves a reduction of debt and extension of payment terms.
Prove Positive Cash Flow and Guaranteed Work
If you prove to a private equipment leasing company that you have the cash flow to make several monthly payments and have customers lined up to perform the work and generate more revenues than bad credit isn't an issue. You'll generally be looking at leasing options from 36 - 60 months, with one payment up to 20% down. Down payments can usually be requested and negotiated.
As long as you can make your monthly payment and get a return on investment that makes you happy than go for it. Utilize the equipment lease for the use of the equipment and start generating revenues.
Final Thoughts About Heavy Equipment Loans
Applying for heavy equipment loans can be tough for business owners. A huge amount of money isn't always required to acquire the equipment needed for the business. But when you have already accumulated bad credit due to the various problems faced, applying for a loan can prove to be a difficult task.
If you can prove that you have the cash flow and work to perform with the equipment you can get approved for heavy equipment leasing.
In this article, we enumerated the different reasons local banks decline heavy equipment loans:
- Poor personal credit
- Derogatory business credit, tax liens
- Insufficient cash flow
- Not enough collateral
We further expanded on these by providing recommendations to prevent them from happening.
In cases where the banks decline the heavy equipment loan application, we discussed alternative ways to obtain equipment funding from private equipment lenders and alternative business lending companies.
To learn more about heavy equipment loans for bad credit and the different options provided in order to obtain them, apply online or call Trust Capital at 866-458-4777 and speak with an equipment financing expert about how to get you the best possible approval that fits your budget.