Who Gets Approved, and Who Doesn’t
If you run a business that relies on equipment to earn income, you are probably interested in financing that equipment to keep costs affordable.
Like any financing, there are some requirements you will need to fulfill before you get approved. All lenders want to reduce their risk of lending. That means they will need to see that you are capable of paying off your loan.
So how do you show that investing in your business and equipment is a good choice? What do you need to get approved for equipment leasing?
Getting Approved for an Equipment Lease – The Criteria
If you have ever inquired about a lease, loan, or mortgage, chances are good that you have come upon the credit score. Your credit score is the single most popular measurement of a person’s creditworthiness. It is a number that’s calculated using a combination of factors such as payment history, debt owing, and credit potential.
Generally speaking, somebody with a high credit score has historically been good about paying their debts on time and not over-committing themselves financially. Somebody with a low credit score has likely had, at some point, missed payments or run into other credit problems.
You can see why a potential lessor would want to see a good credit score.
If you’ve been historically good with credit – chances are you’ll continue to be good.
Fortunately, if you are not confident in your credit score, you have ways to raise it so long as you are willing to put some time and effort into it. Common methods include:
- making your payments on time
- paying down your outstanding balances
- looking over your credit report for potential errors
- closing unnecessary credit cards or line’s of credit
Personal credit score and business credit score are based on very similar factors. An equipment leasing company will be primarily looking at your business credit if you are incorporated. If you are a sole proprietor or unincorporated partnership, than your personal score will be considered.
Credit score only starts once you have credit. If you’re a new business or young, look at building your credit up safely. Sign up for a low balance credit card or line of credit, and then start using it for a few things. Then be very diligent in paying it off on time.
Until you and your business have a reasonable credit score, you will not be approved for an equipment lease.
Technically, your credit history is one of the components used to calculate your credit score. However, there are some parts of your credit history that will stand out more to leasing brokers. There are red flags that will stop your approval immediately.
If you have encountered any of these events in the past 5 years, you will be declined:
- Consumer Proposal
- Debt Consolidation
- Frequent Payment Default (you regularly miss minimum payments)
Unfortunately, there is no real way to bypass such problems save for the passage of time.
Age of Business
A new business typically doesn’t have much credit history on which to base lending decisions. Lenders like to see at least 2 years worth of business activity.
This isn’t an instant decline though. If you’re running a new business there’s still some good news!
You can get approved if you’re realistic about what you want. Go for a small equipment lease. Something that isn’t super risky for your lender. Think of equipment that will benefit your business success, but doesn’t cost a lot and has a high resale value. Those items are a low-risk investment for lenders and they might be more willing to take a chance on you.
Finally, if you’re just starting out you might be required to show a positive personal financial history. Be prepared to provide documentation like financial statements and tax documents. Make it clear to your lease broker that you already have these documents ready. In all honesty, lease brokers want to know you aren’t going to use up a lot of their time on a low-value lease. Just be prepared. Extra paperwork is the cost, to you, as a new business owner.
Finally, lease brokers tend to be pretty interested in why their potential customers want a certain piece of equipment. What will you use it for? How will it grow your business? Do you really need it?
A well-thought out plan instills confidence that you’ll make good use of your equipment and that it will enable you to grow your business. A good lease broker knows how to leverage your intentions into a lessor saying “yes, that makes sense!”
Be prepared to present your business-case for the equipment purchase. If you were presenting your business to a venture capitalist, you’d expect to provide a story and business plan. Well, good equipment isn’t cheap and lending you the money to purchase it is an investment.
Are You Approval-Ready?
If you believe that you meet the conditions for an equipment lease, contact Thomcat Leasing to get started. They will make sure that the application process is as simple and pain-free as it can be. Not too mention that you will be represented well to Canada’s top lenders. Get the equipment your business needs to succeed and grow!