Can A New Business Qualify for Equipment Financing?
If you're a startup business, virtually no bank or dealer will be able to provide you financing for business equipment.
Many equipment leasing companies won't work with you either, so expect rates to be a little higher than if you were established for longer.
What is a Startup?
Startups (in the leasing world at least) mean any company that has been in business for less than 2 years. 2 years is a "magic number" for most business financing because most businesses that fail do so in the first 2 years. 34 percent of businesses fail within the first 2 years, and from years 2 through 6, another 22 percent of businesses fail, and the numbers drop off sharply after that.
So, if you're new in business, that's awesome, and congratulations, but know that financing will cost you a bit more, and for a really good reason.
Within that two year time frame, here's what you can expect as far as being able to qualify to lease equipment:
If you have good credit:
If you have decent credit, you can usually be approved for financing even if you started your business last week.
The rates are nowhere near what you would pay if you had been in business 10 years, but they are not outrageous. The particulars of new business financing vary depending on what type of business you are starting and what type of equipment you are leasing.
Heavy equipment, trucks for owner operators, vocational vehicles, and other equipment is generally the easiest to lease for a new business, as this type of "collateral" retains value better than most other types of equipment that you could finance.
With that being said, however, usually if your business and situation "make sense" it doesn't really matter what the equipment type is.
If you have fair to poor credit, can you still finance equipment as a startup?
If you have collateral or some security deposit or a reasonable down payment, usually you can borrow the money.
The amount you'll have to come up with to make the transaction "safer" for the lender varies tremendously, and depends on your situation, industry and what type of equipment you're buying.
We've had people with horrible credit buy equipment from 25 years ago with a 25% down payment, and we've had startups with decent credit buying new equipment have to come up with 100% collateral (100k worth of collateral to purchase 100k worth of equipment...) so the answer is, it depends - but the more common the collateral is the easier it is to finance.
More Equipment Finance 101: 7 Basic Questions
- How much does it cost to finance or lease equipment?
- What is the difference between an equipment loan and an equipment lease?
- How do I qualify for equipment financing?
- Can I still lease or finance equipment with bad credit?
- Can a new business qualify for equipment financing?
- What are the tax benefits of equipment loans and leases?
- How does the process work?