Commercial equipment financing is necessary for many business owners in the marketplace today. Getting the equipment you need is essential to the day-to-day operation of the business. Obtaining a loan for equipment is a great way to get what you require without having to invest capital. Many changes have been made to the loan process due to our changing economy.
Higher Credit Scores
Your credit score has always been a large part of any loan process. If you have a business, most lenders want to evaluate the credit score of the company. Previously, you could get by with a low to medium score. However, our current economy has made lenders more conservative. While there are programs out there for businesses with bad credit, they are harder to qualify for and the loan amounts have been drastically reduced. Also, the interest rates for the programs are substantially higher.
Larger Down Payments
In the past, you could find 100% financing almost anywhere. Lenders were more than happy to give you the full amount of the equipment. In slower moving economies however, you are required to invest a large down payment. The down payment will need to be pretty substantial in most cases. When lenders require a large down payment, they are simply limiting their risk. If they give you the entire amount of the loan upfront, they will be in deeper debt, in the case of a loan default.
More Rigid Schedules
In the past, many commercial equipment lenders had very loose standards when it came to payment schedules. You had access to a number of different and flexible payment plans. Because of economy shifts, you now have a strict payment and due date schedules. Now, lenders will quickly report all payment lates. Lenders are taking less risk, and making sure that their bases are covered.
The amount of money that you can borrow has undergone a significant reduction as well. A few years ago, you could walk into any lender and borrow a hefty sum to get the equipment you need. In a bad economy, lenders are more strict as to how much you can borrow. They have different ratios that help them calculate lending amounts and stick to their guidelines, without exception.
A clear business history is very important to lenders. New businesses are experiencing difficulties when trying to get approved for loans. Lenders want to do business with established companies that have been around for a few years. If you can demonstrate that your business is still doing fine during the recession, they will feel much better about giving you the money for the equipment you need. It is not impossible for new businesses to get equipment loans, but it is much less likely if you cannot prove that your business will succeed, no matter what the economy is.