Do All Equipment Finance Companies Check Your Credit History?
If you’re looking to finance some new equipment for your business, one of the first things you probably wonder about is whether the lender will check your credit. It’s a fair question – after all, your credit history can impact the loan terms and rates you qualify for.The short answer is: most, but not all, equipment finance companies will check your business and personal credit reports before approving financing. However, there are some exceptions, and the underwriting process varies by lender.
How Credit Checks Work in Equipment Financing
First, let’s quickly cover what business credit is and how it works when you apply for a loan.Your business credit reports and scores are separate from your personal credit. Business credit reports track the payment history specifically for your company accounts – things like business loans, credit cards, vendor accounts, etc.Lenders use your business credit reports and scores to help predict the likelihood that you’ll repay the equipment financing. In addition to business credit, most lenders also check your personal credit.The major business credit bureaus include:
-- Experian Business
- Equifax Small Business
- Dun & Bradstreet
So when you apply for equipment financing, here’s what generally happens:
- The lender checks your business credit reports and scores
- They also check your personal credit reports and scores
- They verify your business financials and assets
- Finally, they analyze all this data to make an underwriting decision on your loan
Your credit history – both business and personal – is a major factor in whether you’re approved and what rates/terms you qualify for. The better your credit, the better financing terms you can usually get.
When Do Lenders Skip the Credit Check?
Now back to the main question: are there certain equipment finance companies that don’t check your credit?The short answer is yes, but they are less common. Here are a few examples of equipment financing with no credit check:
1. Equipment Leasing
If you lease equipment instead of financing a purchase, credit requirements may be more flexible. With a $1 buyout lease, the leasing company owns the equipment, so the risk is lower if you default.That said, most equipment leasing companies still check your credit, they just may have lower score requirements.
2. Merchant Cash Advance Lenders
Merchant cash advance (MCA) lenders provide financing based mainly on your credit card sales, not your business or personal credit.The way MCA loans work is:
- Instead of getting a lump sum, you receive the financing as a percentage of your daily credit card sales
- The MCA company takes a fixed percent of your sales each day until the balance is repaid
- The rate is usually high – often over 50% APR
So if your business processes at least $5-10K+ in credit card sales monthly, an MCA could fund you without checking personal or business credit at all. Just know the rates are sky-high.
3. Alternative and Peer-to-Peer Lenders
There are also some newer financing options like:
- Online alternative small business loans – Fundera lists a few options for loans up to $500K with soft or no credit check requirements. Just know the rates start higher, from 7.99%+ APR.
Peer-to-peer business loans – These platforms connect business borrowers directly with individual and institutional investors. Some have no official minimum credit score requirement.
The catch is that while these lenders may fund you without checking your credit at all, that doesn’t mean approval is guaranteed. They still consider other risk factors – your time in business, revenues, defaults history, etc. So credit remains helpful even when it’s not checked.
How to Get Financing When Your Credit Isn’t Perfect
What if you need equipment financing but have less-than-perfect credit? Here are some tips:
1. Have a Down Payment Ready
Putting 10-30% or more as a down payment shows you’re financially committed. It also offsets any risk from weaker credit.
2. Highlight Your Strongest Business Metrics
Emphasize your positive assets and financials – like having significant contracted revenues, assets to leverage, or a long, stable time in business.
3. Consider an Equipment Vendor Program
Many equipment manufacturers have special financing programs that may approve with lower/no credit requirements. Though their interest rates tend to be higher.
4. Talk to Financing Brokers
An experienced equipment financing broker has relationships with many types of business lenders. They can help match you with a lender suited to your unique situation.So in summary – having strong business and personal credit scores undoubtedly helps to get approved for the best equipment financing rates and terms. But all hope isn’t lost if your credit is far from perfect.With alternative options like equipment leasing, merchant cash advances or specialized vendor financing programs – there are still paths to get funding for that essential equipment your business needs.
Key Takeaways About Credit Checks and Equipment Financing
- Most equipment lenders check your personal and business credit reports before approving financing
- Good credit scores qualify you for better loan terms – lower rates/fees, more flexibility, etc.
- Some options like equipment leasing or merchant cash advances may approve you without checking your personal credit at all
- Even with poor credit, having a hefty down payment or highlighting strong business financials can help offset the risk
- Talking to an equipment financing broker can help match you with poor credit financing options
Hope this gives you a better idea of what to expect regarding credit checks when seeking equipment financing! Let me know if any other questions come up.