Construction Equipment Financing: How to Get Your Loan Approved?
Construction equipment financing will allow you to acquire heavy-duty machinery for your business without having to purchase it up front. This may include tractors, forklifts, excavators, technical equipment, bulldozers and so on. Even if you have the money to buy construction equipment, financing may still be a more attractive option. In fact, with construction equipment financing you can use your hard-earned money to grow your business through other channels. So how does your business secure a loan to finance its construction equipment needs? Here are the five criteria lenders will consider before approving your loan application.
#1: Your credit score will influence approval of your construction equipment financing application
As with any business loans, your credit score will influence the approval or rejection of your loan application. Financial institutions are interested in both your business credit score and your personal credit score. As such, they will likely check the credit of all principals in your company. They will also look at credit history to see if principals have met financial obligations in the past. Furthermore, unpaid debts or bankruptcies can negatively impact your credibility.
#2: The age of your business can also influence approval of your construction equipment financing application
Typically, to qualify for a business loan, banks will require you to be in business for at least one year. Some financial institutions may even require a two-year minimum. If you are less than a year old, you should look into start-up loans for your business.
#3: Your business’s ability to pay back the loan will be a deciding factor
When applying for construction equipment financing, financial institutions will be interested in your ability to pay back the loan. They want to make sure you can meet all your financial obligations. Thus, they will assess your annual revenue and look for a healthy financial structure. Furthermore, some banks may even require that your net income be 1.25% higher than your total expenses.
#4: Personal debt-to-credit ratio can further impact the approval of your financing application
As stated previously, lenders will typically check both business and personal credit scores. It may seem strange, but some financial institutions are wary of too much personal credit. Their reasoning is that you may turn to your personal credit if things go south with your business.
#5: Construction equipment financing is typically secured against company assets
If you are applying for construction equipment financing, you may need to provide potential collateral to back your loan. In short, you may need to identify company assets to back your loan against default. For example, you could list equipment, real estate, or inventory as potential collateral to allow lenders to cover their risk.
There are several criteria financial institutions will evaluate before accepting or denying a construction equipment financing application. If you are applying for construction equipment financing, make sure all principals have a good credit score and history. Similarly, a healthy balance sheet and annual income will help you secure your loan. Work with a qualified SFL Leasing Group broker to make the loan application process smoother and help you put your business on the path to success.