When it’s time to buy that new equipment, many business owners find themselves turning to their bank for financing. But, as many entrepreneurs have come to learn, most banks are more interested in borrowers with 750 FICO scores, 5 years in business and a super healthy cash flow (with lots of money left in account balances at the end of the month).
That rules out a good number of would-be solid borrowers who are good credit risks, but fall just short of bank requirements. So, when going to an alternative finance company or private bank, what other factors that can help you get that approval?
There are too many to list in this short text, but one thing all finance companies like to see is previous loan activity; more specifically term loans that were eventually paid off.
If you’ve never borrowed money for equipment in the past, bankers tend to get nervous even if you have a FICO score of 800. Let’s assume you always purchased your equipment with cash. Perhaps that made sense at the time; but if you’ve never felt the crunch of making a $2,000 per month payment for a semi truck or restaurant refrigeration unit, that could be a strike against you.
Too often we see applicants with excellent credit get turned down by the top banks because their FICO score was based on $2,500-$10,000 credit history with VISA, Target, Sears or American Express. Good history with revolving credit lines can help, and of course paying any debt on time helps your credit score; but those types of credit lines pale in comparison to being able to demonstrate that you successfully paid off a $75,000 equipment loan balance over 4 to 5 years, and in a timely manner. When Equipment Lenders and Banks can see that you have financed and paid off equipment, they view you as a seasoned businessperson who was able to MAKE MONEY with the money they borrowed.
If you’ve borrowed money for equipment, make sure you get ‘credit’ for being punctual with payments and payoffs. Some equipment lenders don’t report your payment history, so you may have to request a letter from your previous bank or finance company, so that your new lender can get that off their checklist.
That small thing may be the tipping point to your approval, so don’t overlook it since it’s something ALL equipment lenders like to see.