Your Comprehensive Guide to Equipment Finance Basic Credit Underwriting
Equipment financing is not a one-size-fits-all solution. Navigating the complexities of financing can be challenging, especially for those with limited experience as a buyer, equipment vendors or an equipment leasing broker.
This is just a guide. Not an absolute credit window but a window to where you can expect. There’s always a way to do it smart, but you have to know what you’re doing; otherwise, you will end up working with a broker that will cause you multiple inquiries since most equipment leasing lenders will do hard-pull or hard inquiry. The more you show yourself the more you jeopardize yourself. Each lender will have their own credit window but mainly follows the following exposure guidelines more or less.
However, Liberty Capital has deep roots in the equipment leasing industry. Over 20 years of equipment knowledge and expertise, we are well-equipped to handle all types of equipment financing needs. We can break up multiple financing exposures to accommodate lender’s exposure limit to accomplish “Low Doc Equipment Financing” utilizing our “app-only up to $250,000 financing.” We know how to structure difficult deals.
Typical Credit Guidelines for Equipment Financing
$3,000 – $49,999: 600 credit score or higher
v Start up to 1+ years’ time in business, present control
v Credit Reports, 5yrs clear history, No major Derog, 7min Satisfactory trade
v Personal guaranty required with a Fair Isaac FICO of 600 or higher.
v Bank Statements Med-4 (No NSF’s allowed!)
v Comparable high credit, trade or personal ($35k+ through application & UCC)
v Multiple location w/ disclosure and landlord waiver
v APP-ONLY START UP MAX LIMIT!
$50,000 – $150,000: 650 credit score or higher
v Start up to 2 years’ time in business, present control
v Personal guaranty required with a Fair Isaac FICO of 650 or higher.
v Bank Reference—Low-5 (banks statements or Bank Rating)
v Company must be D & B Rated if not we need a comp rating.
v Comparable high credit, trade or personal (will pull biz credit for this)
v 1 YEAR TIB (time in business) for Max Limit – APP-ONLY MAX LIMIT
$150,000-$250,000+ 650 credit score or higher
v 2 to 3+ years’ time in business, present control
v Personal guaranty required with a Fair Isaac FICO of 650 or higher
v Bank Reference—Low-5 (banks statements or Bank Rating)
v Two (2) years business tax returns
v Two (2) years personal tax returns (for each owner)
v Personal Financial Statements
v Interim Financial Statements (P&L & Balance Sheet)
v Bank Reference—Med-High-5 (banks statements or Bank Rating)
v 3 YEARS TIB for Max Limit – APP-ONLY MAX LIMIT
$250,000+ 650 credit score or higher
v (2) years business tax returns
v Two (2) years personal tax returns (for each owner over 20%)
v Personal Financial Statements
v Current Interim Financial Statements (P&L & Balance Sheet)
v Personal guaranty required with a Fair Isaac FICO of 650 or higher
v Bank Statements —Med-High-5 (banks statements or Bank Rating)
v Debt Schedule (maybe required)
v 5 YEARS TIB for Max Limit – APP-ONLY MAX LIMIT
APP-ONLY MAX LIMIT $250,000 – 725 credit score or higher
v Personal guaranty required with a Fair Isaac FICO of 725 or higher
v Bank Statements —Med-High-5 (banks statements or Bank Rating)
v 5-7 YEARS TIB for Max Limit – APP-ONLY MAX LIMIT
CORP-ONLY– 80+ PAYDEX
v Paynet must be available
v Publicly traded companies
v Over 75 owners
v No over 20% majority ownership –
v o business credit
v Bank Statements —Med-High-5 (banks statements or Bank Rating)
v5-7 YEARS TIB for Max Limit – APP-ONLY MAX LIMIT
This guideline is designed to simplify expectations when applying for equipment financing. It’s important to understand that underwriting for equipment leasing and financing is not a one-size-fits-all process. Many applicants have limited knowledge of how underwriting works in this context, and this overview aims to clarify that.
A common reason lenders may prefer offering working capital loans over equipment leases is the stricter credit requirements associated with leasing. Leasing often involves a narrower credit window due to various factors, making it a more selective option.
In contrast, working capital loans typically have more flexible credit criteria and faster approval processes, making them more accessible for businesses in need of immediate funds.
Understanding these differences can help you make informed decisions about the financing options that best suit your business needs. Sometimes, what you ask and expect might not be the same as the what you can qualify. Many would wish to get SBA for all loans, 0% interest on business funding, but the reality, that’s not how it works.
Comparing Retail Loan, Equipment Leasing and Financing
|
Feature |
Buy-Now-Pay-Later |
Equipment Leasing |
Equipment Financing |
|
Buyouts |
Retail Finance |
$1 Buyout, FMV 10%, FMV True Lease |
Equipment Finance Agreement |
|
Initial Costs |
Low to Moderate |
Low to moderate |
Low To Moderate |
|
Monthly Payments |
Fixed |
Fixed |
Fixed |
|
Tax Benefits |
Yes |
Yes |
Yes |
|
Compounding |
Yes |
No |
No |
|
Maintenance Responsibility |
Yes |
Sometimes included |
Varies |
|
Max Term |
5 years |
5 years |
5 years |
|
Min Credit Score |
600+ |
600+ |
650+ |
Choosing between an retail loan, leasing, and other financing options depends on various factors, including your business’s financial situation, industry needs, and long-term goals. What you can buy and what you can afford can be two different things.
What do I need to apply?
By leveraging our no obligation services, your business can access much-needed capital while protecting financial flexibility without compromising access to competitive rates.
Start with our online application. We will then provide multiple offers and determine the best suggestion to proceed so you can make a business decision.
- ONLINE APPLICATION:Please fill out our online application, upload and authorized us to process. We do soft inquiry.
- If you’re looking to finance equipment – Upload equipment Invoice or Quote – we can lump multiple equipment and vendors into one loan.
- Banks statements (3-4 months) – Proof income, proof of banking,
- Tax Returns and Financials – Not needed to get pre-qualify.
More equipment financing credit guidelines you need to know...
Credit underwriting secret you need to know..
v Labor, Delivery Cost & Service Contract–Up to 20% of the equipment cost
v Business credit review: Dun & Bradstreet, Paynet & Experian
v Bankruptcy will consider w/ re-established credit (3-5 yrs discharge/missed)
v Startup will consider w/ strong credit + down payment
v Multiple inquiries for business debt will not help.
v Too much recent leasing debt will not be helpful
v Home business will be considered as long as has DBA or business checking.
v Used Trucks, Trailers and Equipment will be viewed on a per asset, cost and client profile.
v Can finance up to 60 months on used trucks, trailers and equipment.
v Down payment may be required for equipment older than 7 years old.
v Down payment will likely be required for less than perfect credit and start up ups with less than perfect credit.
v Additional collateral can substitute bad credit owner.
v Collateral might be required for less than perfect credit.
v Security deposit and down payment are not the same.
v Security deposit is refundable
v Down Payment is not refundable.
v First and Last payments are not down payments, but an advance payment.
v Advance payments are not refundable.
As you can see, your qualification is not always absolute, there are variables not included in here such as Paynet, Paydex, Background History, Industry, Business History, Type of Industry, Type of Equipment (new or used makes a difference due to age, resell value), dealer or private seller.
This is just to guide you with the basics. Criteria you will encounter when applying for equipment financing, business loans, or other types of loans will vary. Most would say they rather work with a direct lender, but doing so may not be always the best choice due to complexity of getting the right approval based on the funding.
