Be prepared. It’s not just a motto for Boy or Girl Scouts.
Having important information at hand when applying for equipment financing may not only reduce the time it takes to process your application, it also may improve the probability of approval.
Exploring the entire credit application process is also crucial to understanding why financing is approved or denied.
Here is advice to prepare yourself if you’re applying for equipment financing with a financial institution, especially if you’re buying equipment for your small business.
What You Need to Begin
To start the equipment financing process, you may need to dig into your business records.
Have the following items available before completing the application – whether online, over the phone or in person:
- Your identifying information: Name, home address, driver’s license, Social Security number
- Business partner information (will need for each): Name, home address, driver’s license, Social Security number
- Company information: Company name, address, phone number, Federal Tax ID number (Employer ID number), industry, time in business
- Collateral: Equipment description (year, make, model) and its cost
- Reason for equipment purchase (expansion, replacement, new contract, moving outsourced work in house)
Depending on the business, credit, industry, collateral and requested finance product type, a financial institution may request supporting documentation to help analyze the risk and return of providing financing.
Financials such as bank statements, a balance sheet, personal and business tax returns, as well as profit and loss statements are essential to determining historical cash flow and if your company will have the money to support the payments.
A lender may also ask to see your business plan. A 2-5 year business plan, especially for startup companies, can define long-term goals for the business. You may need to adjust the plan as your business grows.
Jill Molitor, a credit manager at Stearns Bank’s Equipment Finance Division, suggests these key topics to cover in the business plan:
- Industry-related experience
- Products or services you plan to offer
- Your target market and what type of marketing will reach those targets
- A timeline for additional current and future equipment purchases
- Estimated Sales and Expenses, along with supporting calculations
Your Credit Score – The X Factor
A personal credit score is used by financial institutions to determine how well you manage your money – including your business finances.
► Exploring the entire credit application process is crucial to understanding why financing is approved or denied
► A financial institution may request supporting documentation to help analyze the risk and return of financing
► A personal credit score is used by financial institutions to determine how well you manage your money, including your business finances
Debt repayment patterns, volume and type of debt and any prior bankruptcies or slow payments are factors that affect the decision to approve a loan. This score is based on personal credit reports from Experian, TransUnion or Equifax gathered by the lender. Some lenders consider business reports such as Business Experian and PayNet when underwriting a transaction.
Concerns on the business credit reports, or prior failed businesses may raise doubts about ability to make payments.
“We look at the entire picture of the applicant and how the various reports fit together,” Molitor said. “We do not focus on any one individual score. Sometimes we can overcome concerns by obtaining the story of what happened, and what the applicant has changed to prevent future credit concerns.”
Due to the many variables involved in calculation, your credit score is likely to vary across reporting agencies, as well as from institution to institution. Nonetheless, reviewing your personal credit score should give you a good indication of overall credit health.