Equipment Financing – Documentation and Requirements:
- Application
- Personal Identification (Driver’s License, Passport)
- Invoice or details about Collateral (property, equipment, etc.)
- Tax Returns (Two years of business tax returns)
- Financial Statements (Year to Date Profit and Loss, Balance Sheet)
- Business licenses and permits (if applicable)
Significance of Each Document
Application:
Provides detailed business and personal information. Items such as business start date, EIN, address, and contact information.
Personal Identification:
Verifies the identity of the applicant and any key stakeholders involved in the business.
Details about Collateral:
Assures the lender of assets that can be leveraged in case of default.
Purchase orders:
If you have not yet purchased the equipment you are financing, lenders may want to see purchase orders.
Equipment invoices:
If you have already purchased the equipment, you are financing, lenders may want to see the invoices.
Tax returns:
Lenders may want to see your tax returns to get a better understanding of your financial history and tax liability.
Financial Statements:
Provide insights into the company’s financial health, profitability, and stability.
Business licenses and permits:
Lenders may want to see proof that you have the necessary licenses and permits to operate your business.
Personal financial statements:
If you are a Sole Proprietor or partner in a business, lenders may want to see your personal financial statements. Typically, this is only required on more complex purchases or arrangements.
Eligibility Criteria
Credit Scores:
Reflects the creditworthiness of the applicant and the ability to repay. Nowadays, there are so many different options even folks with poor credit history have a good chance of obtaining financing.
Business History:
Demonstrates the stability and success of the business over time. The longer you have been in business the more stability you present to the lender.
Available Collateral:
Assures the lender of backup assets in case of default. Some collateral has higher inherent risk such as depreciation, becoming obsolete, or the level of demand.
Industry-specific Risks:
Factors unique to the industry that might impact loan repayment. Higher risk industries are going to find stricter guidelines and typically a higher cost of capital.
Tips To Improve Your Chance of Approval
Improving Credit Scores:
Regular payments, reducing outstanding debts, and correcting credit report errors. Take the time to review and understand your credit when applying for financing. It may be advantageous to correct some errors and increase your score. A lower cost of capital could provide significant savings over time.
Strengthening Business Profiles:
Showcasing steady revenues, reduced debt, and clear future strategies for growth. This can be done with your bank statements and business credit score. If you incur NSF’s or overdrafts, this can be a huge red flag for a lender as it relates to your ability to repay the loan. Establishing business credit is a process but is well worth it. There are several companies like this one CreditSuite that can help you.
Timelines and Expectations
Submission:
Typically, application processing times vary, but expect a period 24 hours to several weeks. This is going to depend on the complexity of the equipment. If you are purchasing a truck or refrigerator, it will be faster than say a Hydraulic Demolition Grapple.
Approval/Rejection:
Lenders should provide an official decision within a few days of the underwriting process. This can be delayed when documentation or information is piecemealed as opposed to sent in at the same time in a comprehensive manner. When an underwriter must stop reviewing the file to wait for information it will cause delays.
Funding:
Upon approval, funding can range from the next day to a couple of weeks, depending on the lender’s processes and negotiations.
Next Steps:
Applying for equipment financing can be a process, but we are here to help. To understand where to find the best options for equipment financing and what to consider when looking for the best option, visit our website for additional resources like this guide to Equipment Financing.