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Can I Get an Equipment Loan if I Have a 500 Credit Score?

So your business needs some new equipment but your personal credit score is less than stellar at 500. Getting approved for financing may seem hopeless, but there are still options out there if you know where to look. I’ll walk you through what factors lenders consider, your chances of approval, and 6 tips to boost your odds.

What Equipment Lenders Look For

When an equipment lender reviews your loan application, they mainly consider these criteria:

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  • Credit score – This gives them an idea of how reliably you’ve repaid debts in the past. A 500 score indicates past struggles.
  • Time in business – The longer you’ve been operating, the less risky you seem. Startups are seen as the riskiest.
  • Annual revenue – Your revenues indicate if you can afford loan payments. Most lenders want to see at least $100,000 per year.
  • Down payment – Putting 10-30% down shows you’re financially committed to the purchase.
  • Collateral – Other business assets may be required to secure financing if your credit is poor.

What Are Your Chances of Approval?

The hard truth is getting approved for financing with $500 credit is tough, but not necessarily impossible if other factors in your application are strong.According to the Small Business Administration, most traditional banks won’t even consider applicants with scores below 650. So you’ll likely need to look at alternative lenders who offer bad credit business loans and specialize in riskier borrowers.Your exact chances depend on your credit history and other qualifications:

  • Poor approval odds – Less than 1 year in business
  • Possible approval – 1-4 years in business with revenues over $100k
  • Good approval odds – 5+ years established with strong revenues
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As you can see, the longer you’ve been operating and the higher your revenues, the better your chances since you seem less risky.

6 Tips to Boost Your Chances

If your business is still young or your revenues are low, here are 6 tips to improve the odds of getting approved for an equipment loan with bad credit:

1. Shop With Alternative Lenders

As mentioned before, you’ll have much better luck getting approved for financing with specialized alternative lenders rather than big banks.These lenders include companies like OnDeckNational Funding, and Currency Capital. They understand the realities of running a small business and are more flexible with credit requirements.

2. Offer a Large Down Payment

Putting down 20-30% of the equipment’s cost indicates you’re financially serious about the purchase. This can offset concerns about your low credit score for some lenders. Even 10% down shows good faith.

3. Use Collateral

Having other business assets or equipment that can be repossessed if you default makes lenders feel more secure. This collateral acts as a form of insurance. The more you can put up, the better in terms of qualifying.

4. Show Strong Revenues

Solid revenues indicate you can afford loan payments. Shoot for at least $100k annually. Be ready to provide tax returns and financial statements. Rising year-over-year revenues also tells lenders your business is growing.

5. Highlight Reasons for Your Low Score

If past medical bills, student loans, or a divorce impacted your credit, explain this to lenders. Giving valid reasons for your low score along with steps you’ve taken to improve it recently can be helpful.

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6. Apply with a Cosigner

Adding a cosigner with higher income and credit can improve your chances. Their solid financial profile offsets concerns about your score. Just know they’ll be equally responsible for repaying the loan if you default.

Equipment Loan Rates for Bad Credit Borrowers

The biggest downside of getting approved for financing with poor credit is higher interest rates. Specialized lenders view you as high-risk, so you’ll pay more compared to someone with 700+ credit.Equipment loan interest rates by credit scoreAs you can see in this chart from Nav, applicants with 500 credit pay about double the interest rate compared to those with good credit – often 13-30% APR.The exact rate you’ll pay depends on your:

  • Credit score and history
  • Time in business
  • Revenues
  • Industry type
  • Down payment percentage

So interest rates can still vary widely among 500 credit borrowers based on their overall risk level.The best way to find the lowest rate is to compare multiple equipment lenders. Each will offer their own unique rates and terms based on their underwriting model. Shopping around saves money.

Final Thoughts

Getting approved for an equipment loan with a very poor 500 credit score is challenging but definitely possible under the right circumstances. You generally need to have been operating for multiple years with strong annual revenues.Offering a sizable down payment, using collateral, and applying with a cosigner can also offset credit concerns many alternative lenders have.Just know that low credit means paying higher interest rates – often over 20% APR. So make sure financing equipment is still affordable for your business before signing any loan agreements. The last thing you want is to end up defaulting on payments because they’re too expensive.

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