If you're considering leasing equipment, there are six tips to keep in mind that can boost your chances of being approved for a loan.
When seeking to lease equipment, having a basic knowledge of equipment financing allows business owners to significantly increase their chances of being approved for a loan. Equally important, this knowledge can help ensure businesses increase their chances of securing favorable rates, terms and general structures commensurate with their overall credit quality and business financing needs. Below are some of the key areas you should focus on.
Leasing is available regardless of how long you have been in business. Although financing is available to startups, your overall time in business may increase your chances of approval. Equally important is the industry you're in and your business model – as on occasion, some industries are out of favor. In 2008 and 2009, the auto industry was clearly "out of favor."
Lease financing is a segment of "asset-based lending." Therefore, the asset you are financing plays a considerable role in determining whether you're likely to be approved and pricing. Equipment that is financed tends to depreciate, so your lease firm will focus on the value of the equipment during the term of your lease. As an example, a lessor could reasonably expect to recover five to 10 percent of a computer's value three years from now, simply because a computer and telecom equipment as asset classes depreciate quickly.
Equipment that is not purchased from bona fide vendors and manufacturers also can present financing challenges. Therefore, if you have a choice, work with reputable dealers, wholesalers, manufacturers, etc.
Any lease firm will run a credit check on your firm and check your payment history with suppliers. Personal guarantees, as well as a net worth statement and personal credit check, may also be required from owners of private, small and medium-size businesses. (Frankly, these requirements are common with many types of financing, whether you're seeking a corporate credit card, a business loan, etc.) Lease firms typically provide the quickest overall approval times than any other type of business financing. Many lessors use automated credit scoring systems, and smaller transactions consisting of $50,000 or less, for example, can be approved in a matter of minutes or hours.
Lease transactions can run into the millions of dollars, so expect that the more expensive a piece of equipment is, the higher the level of due diligence will be performed on your firm.
Finally, leasing is all about structure, so feel free in your lease structure request to ask for those terms that are important and beneficial to you, such as lower rates based on your credit quality, seasonal payments, flexible end-to-term options, etc.
In summary, business owners should learn key leasing basics regarding what is required for a lease approval. Being armed with the right information can ensure more prompt approval as well as more favorable terms. That is sensible, proactive financing. Seek the advice of a trusted and credible lease financing advisor who can assist you with asset financing needs.