No credit check equipment financing is a great way for businesses to get the equipment they need without good credit. This type of financing is available from many different sale and leaseback lenders and can be used for a variety of equipment purchases. There are a few things to keep in mind when looking for no-credit-check equipment financing, but with a little understanding of the process and some available equipment or other assets as collateral, a business can easily find the financing it needs.
Table of Contents
- Introduction to No Credit Check Equipment Financing
- No Credit Check vs. No Minimum Credit Requirements
- Main Requirement for No Credit Check Equipment Financing
- Types of Equipment That Can Be Financed
- The Benefits of No Credit Check Equipment Financing
- What Effective Interest Rates to Expect with No Credit Check Equipment Financing
- Equipment Valuation When Applying for No Credit Check Equipment Financing
- Finding a Broker
- Conclusion
Introduction to No Credit Check Equipment Financing
When the FICO score was created in 1989, a credit score became one of the cornerstone components for underwriters and banks to make a decision on who they should lend to, how much, and what terms. Today this score is still very much a huge decision in deciding the credit-worthiness of a borrower, especially in small businesses, owner-operator, and self-employed businesses needing financing to grow their business.
As most business owners will attest, things are not always smooth running, growing, and maintaining a business. When the tough times happen and bills are slow-paid and reported to the credit agencies, your FICO and other credit scores will drop. If things get more challenging businesses can have judgements, foreclosures, liens, and bankruptcies be reported to the credit bureaus. As one would expect, that score drops even lower and can take years to recover.
If a business finds themselves in this type of situation with a bumpy credit history and a low credit score, this is where no credit check equipment financing customers can utilize an equipment sale and leaseback. With this type of product, the lender does not care about your creditworthiness, they only care about the value of your existing equipment and other assets to structure the deal.
No Credit Check vs. No Minimum Credit Requirements
There is a difference between “no credit check” and “no minimum credit requirements”. Almost all lenders will want to review your credit report, however, they will not base their entire decision on what they find in that credit report, i.e. “no minimum credit requirement”.
For example, if a business has $100,000 in equipment collateral and the owner has a 492 FICO score, the underwriting amount will be based on the $100,000 valuation and not the FICO Score. Some lenders may offer improved terms with a better credit history, but the deal size and approval will not be based on the FICO score.
Main Requirement for No Credit Check Equipment Financing
It is important to note that the main requirement for no credit check equipment financing is to ensure that the business or borrower has equipment or other assets to use in the equipment sale and leaseback transaction. If the borrower does not have collateral to pledge for the deal, there is nothing for the lender to secure to make a deal.
Types of Equipment That Can Be Financed
Customers looking for no credit check equipment financing will likely leverage an equipment sale and leaseback. With this type of transaction, a customer may be looking to either:
- Pull cash out of their existing equipment and assets
- Purchase a new piece of equipment using their existing equipment and assets
If the customer is pulling cash out of existing equipment, then they can technically use that cash as they see fit. Therefore, there are no limitations on what can be purchased with that money.
If the equipment sale and leaseback are used to finance new equipment, each lender has their industry requirements. To find out if your equipment qualifies, send your equipment list to a broker.
The Benefits of No Credit Check Equipment Financing
There are a few benefits of this type of financing. First, no credit check equipment financing usually does not require a personal guarantee. This means that the business owner is not personally liable for the debt if the business cannot pay it back as the deal is structured using existing assets. This can be a great benefit for business owners who have bad credit but do not want to put their assets at risk.
Second, no credit check equipment financing can be used to finance almost any type of equipment. This can be a great benefit for businesses that need to finance a wide variety of equipment.
Third, this type of financing can be obtained very quickly. This can be a great benefit for businesses that need to finance equipment quickly. Generally, these types of transactions can close in a couple of weeks.
Fourth, no credit check equipment financing can be a great benefit for businesses that have bad credit but are otherwise financially healthy. This type of financing can help businesses that have bad credit get the equipment they need without having to put their business or personal credit at risk.
What Effective Interest Rates to Expect with No Credit Check Equipment Financing
Business owners should expect a higher effective interest rate on a no-credit-check equipment financing transaction utilizing an equipment sale leaseback. Due to the nature of solely using the equipment collateral and the additional work, it would take to resell that equipment in the event of a default, the lender’s risk is calculated in the finance agreement.
However, depending on each business’s unique situation, this higher effective interest rate is generally manageable and is still worth either injecting cash into your business or putting additional equipment to work in your company.
Equipment Valuation When Applying for No Credit Check Equipment Financing
One of the biggest considerations of a no-credit-check equipment financing deal utilizing a sale and leaseback is the value of the equipment and assets being used to secure the transaction.
The lender that you work with will assign an initial value upon deal review, and most of the time order an appraisal to confirm the condition of the equipment.
While the common methods for valuing business equipment listed below are depreciation schedule, replacement cost, and auction value, most equipment sale and leaseback lenders will use the auction value method.
Depreciation schedule
The depreciation schedule is often used to value business equipment for tax purposes. This method estimates the value of the equipment by subtracting the accumulated depreciation from the original purchase price.
Replacement cost
The replacement cost method values equipment based on how much it would cost to replace the item with a new one of the same make, model, and quality. This method is often used to insure business equipment.
Auction value (Most commonly used by lenders)
The auction value method values business equipment based on its fair market value, which is the price that a willing buyer would pay and a willing seller would accept for the equipment. This method is often used when selling used equipment.
Equipment sale and leaseback lenders use the auction value to mitigate their risk. That method will be the quickest way for them to recoup their investment in the event of a default. Some lenders have specialties in certain types of equipment, giving them the ability to increase the deal size due to the ability to sell equipment (if needed) at a higher valuation. That’s why it is recommended to have your broker review your equipment list to find the right lender.
Finding a Broker
As mentioned throughout this article, using a broker is essential to find the right lender that will give you the best terms and valuation for your equipment or assets used for the transaction. Start by requesting a deal preview by sending your equipment list to a broker.
Conclusion
No credit check equipment financing is a great solution for business owners who have less-than-perfect credit, existing assets to use as collateral and understand how their existing equipment and collateral will be valued by the lender.