Mastering Equipment Financing: How to Efficiently Apply for SMB Loans

Applying for business equipment financing or a small business loan, whether it's through direct purchase (EFA) or equipment leasing, you want to ensure a seamless, efficient, and stress-free application process. The following pointers can help you understand the process from the perspective of equipment finance companies and lenders, facilitating quicker access to necessary capital by aiding in efficient underwriting.

CREDIT APPLICATION REQUIREMENTS

Every application should include:

• A fully signed credit application. The forms are usually designed to gather business information, owner’s details, and equipment information. Applications can be made via paper or online. Online submissions are generally preferred for their immediacy.
• Signed consent allowing the equipment financing company and its partners to review the applicant's business credit and personal credit.
• Vendor identification (name, address & phone) along with a detailed description of the equipment, including cost.
• If there is a signed proposal and you wish to compare terms with other lenders, include it.
• All split transactions must be disclosed.
• A short description that gives the equipment finance company an accurate picture of your business, your revenue situation, and the relevance of the equipment to your revenue generation.

CREDIT DECISION CRITERIA

The criteria for credit decisions encompass:

• When evaluating credit, lenders' primary resources are consumer and commercial credit reports such as Equifax, Experian, Trans Union, Paynet, and Experian Commercial. In cases where individual scores (BNI, Beacon, Fair Isaac or others) present a conflict, the lenders' credit review process will attempt to reconcile the information from multiple bureaus.
• Lenders generally use a common sense approach in their credit decisions. Applications with guarantors having poor credit scores, excessive revolving debt or a history of late or derogatory payment habits are unlikely to be approved. An applicant with limited credit history is unlikely to be approved on an application-only basis.
• Guarantors are preferred to demonstrate a comparable installment or term debt history, by the size of payment and debt, on their credit bureau report (CBR) to the application request.
• Guarantors are usually required to have a minimum of 7 trade lines on their CBR with the oldest account reporting 3 years of payment history.
• Lenders typically consider guarantors with completed loan modifications and 12 months of subsequent, timely payments.
• Commercial credit reports should demonstrate and verify data including: time in business, ownership, business location, favorable trade, lease or loan histories, and acceptable commercial risk scores.

BUSINESS VERIFICATION & BANK REQUIREMENTS

Though not all lenders require bank statements at submission, the applicant must have a verifiable commercial checking account and address under the business name at funding. If the applicant lacks a business telephone and/or a commercial bank account, they wouldn't be considered “in business”. This is a key fraud prevention measure.

Business verification requirements may be waived when it's customary and reasonable for the applicant not to have a business telephone. Examples could be subcontracting or transportation businesses. In such instances, other supporting documentation may be requested, such as sales tax license, business license, business name filing, landlord lease agreement, utility bill, or associated federal income tax schedules.

FINANCIAL STATEMENT PACKAGE REQUIREMENTS

Many lenders have a no-doc program similar to “Application-Only”. However, for further consideration, a detailed financial package may be requested. This is often the case for split transactions or for applicants that have existing exposure with other funding sources.

The package might include IRS Tax Returns and Personal Financial Statement (PFS). A PFS is required on all guarantors, and it must be complete, accurate, and less than 60 days old with detailed supporting schedules, dated and signed by guarantor(s).

CO-SIGNERS

The credit strength of an applicant can often be enhanced with a spousal, parental, or blood relative guaranty. Many equipment loan and small business loan companies evaluate this potential additional guarantor on a case-by-case basis. In general, a co-signer is required when a business owner/operator has a limited credit profile or aged derogatory credit.

HOW LENDERS VIEW BANKRUPTCIES FOR GUARANTORS

Discharged bankruptcy over two years may be considered when any guarantor has a firmly re-established credit history demonstrating depth and timeliness of payments. For applicants with less than 2 years since the bankruptcy, pricing may be considered for ‘C’ Rates.