Can You Get a No Credit Check Equipment Financing

Dane Panes

August 4, 2021
No Credit Check Equipment Financing

 

Key Takeaways

  • Equipment loans can help businesses finance the equipment they need to operate efficiently. However, those looking for a no credit check equipment financing may be disappointed to know that they’re less likely to find a lender that offers one.
  • Credit checks are an important component of loan applications since it tells the lenders about your behavior as a creditor.
  • Business financing options such as invoice financing, invoice factoring, purchase order (PO) financing, and merchant cash advance (MCA) can be excellent alternatives to no credit check equipment financing.
  • Business financing options such as invoice financing, invoice factoring, purchase order (PO) financing, and merchant cash advance (MCA) can be excellent alternatives to no credit check equipment financing.

Equipment plays a crucial role in the productivity of most businesses, but it can also be one of the most expensive investments a company makes. If you don’t have the cash to pay for equipment upfront, applying for business financing like equipment financing is a great way to get the funds you need to obtain these valuable assets.

While no credit check equipment financing doesn’t exist, there are alternative lenders who will work with business owners who have a poor score. In this article, we’ll dive deeper into why a credit check is vital in the equipment loan application process, and discuss the different alternatives to no credit check equipment financing.

That said, credit scores can be a roadblock to receiving equipment loan approval for many business owners. Bad credit or an insufficient credit history can preclude you from qualifying for equipment financing with great terms. If you do apply, the hard inquiry can negatively impact your score even more

 

Why Do Lenders Check Your Credit Report When Applying for Equipment Financing?

Those looking for an equipment financing resource that doesn’t require a credit check may be disappointed to know that there is no such thing. All lenders have to pull your credit report as part of the process.

So, why do they care so much about a borrower’s credit standing?

Think about it from the lender’s perspective. They want to know that you’re going to be able to make loan repayments on time and in full by the end of the financing period. A credit check is how they assess your credit and repayment behaviors to gauge what their level of risk is in lending to you.

Your credit report shows all your financial activities including your debt accounts and their current status, the payments that go towards each account, and more. Banks and traditional lenders check your credit report to assess how responsible and reliable you are in making repayments, and whether or not you have a tendency to end up defaulting on your loans.

Within your credit report is your credit score. Although it’s just a three-digit number, it can show a lot about a person’s credit behavior. Essentially, the higher the number is, the more likely you are to make repayments on time and repay the loan in full. In turn, the lenders will see you as an ideal borrower, and they’re more likely to extend credit with excellent terms to you.

The opposite, however, won’t work favorably to your advantage. Low credit scores could indicate an irresponsible payment behavior and a high chance of default, making you a high-risk borrower. While some lenders may still be willing to work with you, you can’t expect that their terms will be as flexible.

 

Why You Should Still Consider Equipment Loans Despite the Credit Check

Like with several other loan types, equipment financing lenders will require you (the borrower) to put up collateral for the loan as a means to mitigate their risk in lending to you. However, since equipment financing is an asset-based loan, the equipment itself will serve as the collateral. You’ll still have to present your credit score, but it carries less weight in this scenario where there is already an asset built in to the equation which the lenders can use to liquidate and recoup their losses should you default on your loan.

This is to say that even if you have a lower credit score, or a lack of credit history, you shouldn’t opt out of equipment financing altogether

 

Soft Credit Pull vs. Hard Credit Pull

Not all who seek no credit check equipment financing have a bad credit score. In some cases, people look for a lender that doesn’t perform a credit check because they’re worried about how the credit check will affect their credit score.

Lenders typically perform either a soft credit pull or a hard credit pull when checking a borrower’s credit report.

A soft credit inquiry (soft pull) typically doesn’t hurt your credit score and may or may not appear on your credit report. Credit card providers usually perform a soft inquiry on a potential borrower (without the borrower’s permission) to see what credit card terms they qualify for. You’re also performing a soft credit check when you check your own credit report.

A hard credit inquiry (hard pull) is the type of inquiry that affects your credit score which is why it can cause concern for borrowers when applying for equipment financing(or any kind of financing, really). A hard pull is reflected on a person or business’ credit report and can result in a temporary ding on a borrower’s credit score. Especially if you’ve had multiple hard inquiries conducted within a short period of time, there will likely be a significant damage done to your score.

A hard credit inquiry usually implies a new account being opened. While new account applications are helpful to your credit history, multiple accounts opened within a short period of time raises a red flag to lenders, as it indicates a higher chance of loan default.

If you’re looking to apply for equipment financing and the hard inquiry is your main concern, you’ll be glad to know that there are lenders that will only perform a soft pull on your credit report. That said, when searching for the lender to work with, ask them whether they do a hard or soft credit pull before proceeding with the application.

 

Getting Equipment with Bad Credit or Insufficient Credit History

We’ve established that there are lenders out there who will be working to work with you despite a poor credit score, but you will have to show that you’re doing well in other financial aspects.

Each lender has its own criteria it follows when evaluating a borrower’s qualifications. Credit scores are only a part of that criteria. Here are the other factors that lenders look at when assessing your eligibility for an equipment loan and structuring its terms:

1. Revenue

Revenue is your company’s total income. Some lenders won’t require a minimum annual income to qualify for equipment financing, while others will (typically $100,000 or more).

2. Time in Business

Your time in business can show the lenders a record of how you’ve been able to weather storms throughout your tenure as a business owner. The longer your track record is, the better. At the very least, equipment financing companies may require a business to have been in operation for a minimum of two years.

3. Down Payments

Lenders usually require down payments as security for the loan. In some instances, especially when the borrower has a good credit background, they may not require a down payment. However, if the business is considered high risk, they could ask for as much as 30% to 50% down payment.

4. Personal Guarantee

The lenders will often require the business owners to sign a personal guarantee agreement. A personal guarantee is an individual’s legal promise to repay the loan using his/her personal assets in case the business cannot fulfill the repayments. Be sure to check this when reviewing the loan contract, as some lenders may hide this within the contract’s fine print.

 

Best Equipment Financing Lenders

Though these lenders do perform a credit check, they will still be willing to work with you and help you in your equipment financing application even if you lack credit history, you have a poor credit score, or you’re worried that the credit check will take a toll on your credit score.

Here are three lenders to consider:

1. Crest Capital

If you’re looking for the best equipment financing provider in the market, Crest Capital is it. They offer a long list of equipment financing structures and options that will help you address any business need.

Once approved, businesses can get between $5,000 to $500,000 in funding with a repayment period of 24 to 84 months. Plus, Crest Capital quickly goes over each application, and you can expect to hear their decision within hours after applying. The entire loan application process can be completed in a few days.

Crest Capital doesn’t require its borrowers to meet a minimum annual revenue to qualify. However, to increase your chances of approval for equipment financing from the lender, your business needs to be operating for at least two years, and you must have a minimum credit score of 650.Your business should also be free from any delinquent payments or loan defaults from other lenders.

As for the application documents, you’ll only have to submit your personal and business’ financial records if you’re borrowing less than $250,000. However, for loan amounts greater than $250,000, the lender may require you to submit additional documents like proof of business ownership, a written overview of the business, the purpose of the equipment and how it will help your business, tax returns, and more.

2. Balboa Capital

Balboa offers same-day funding. If you’re looking to replace a piece of broken equipment ASAP, Balboa Capital would be a smart choice.

How do they do this, you ask?

Balboa uses an automated approval process so you can have your qualifications evaluated faster and get a decision within hours after your application. Once approved, the funds can be transferred to your account within the day(at least in most cases). With the money in your account, you can start processing your equipment purchase and get the asset in no time.

Getting an equipment loan from Balboa Capital will afford you with up to $250,000 in funding to be repaid within 24 to 60 months. However, you may be able to get more than that if you call them and negotiate. The downside is, you won’t be able to take advantage of the same-day funding feature.

The interest rate can vary depending on your qualifications. In general, Balboa Capital charges around 3.99% to 25% interest rate for their equipment financing.

Here are the qualifications you have to meet if you apply for equipment financing from Balboa Capital:

  • At least $100,000 in annual revenue
  • Must be in business for at least a year
  • A personal credit score of 600

3. Bank of America

Eligible businesses can take advantage of the low rates, high amounts, and longer repayment periods that Bank of America offers. You could even save as much as 0.75% on the interest rate if you participate in their Bank of America Loyalty Program. If you have an existing account open and have a good track record with the bank, you might be able to negotiate for a lower interest rate, making it an even more attractive option.

Approved businesses can get up to $250,000 (or more) in funding, which can be credited to the business’ account within ten days. The maximum loan repayment can be as long as five years.

To qualify for an equipment loan from the Bank of America, you would have to meet the following qualifications:

  • Business must be operating for at least two years under the existing ownership
  • Annual revenue of at least $250,000
  • Must be a U.S. Citizen or resident alien (permanent or non-permanent)

The bank does not disclose the minimum credit score their applicants need to have to qualify for the loan, so you might have to give them a call to confirm.

However, it is worth noting that banks are notorious for their strict qualification guidelines and longer loan application process. So, if you do decide to apply from banks, you have to be patient.

 

Alternative Funding Options to No Credit Check Equipment Financing

Even though equipment financing is a poorer fit for a lending model that doesn’t involve credit checks for some reason (i.e., equipment value depreciation), there are other lending options that may skip the credit check application.

If you can’t qualify for equipment financing, or you’re not willing to risk a hard credit pull, you should consider alternative financing that overlooks the credit check aspect of the loan application. Check these options out:

Invoice Financing

Invoice financing allows businesses to sell their customer’s outstanding invoices. The invoices should be less than 90 days old to become eligible for financing. If approved, the company can get a cash advance of 80% to 100% of the total invoices being financed.

In this case, the accounts receivables act as the collateral for the financing, and the business retains control over the ledgers and payment collection. However, if the business defaults on the payment, the lending company will take over the accounts receivables and collect the customer’s payments.

With invoice financing, the primary concern of the financing company is the credit scores of the borrower’s customers. In fact, they’re more likely to check your customer’s credit rating than yours to determine the invoice’s qualification for financing. With that, you may have more luck finding a lender that will forego a credit check on you or your business.

Invoice Factoring

Invoice factoring is a type of invoice financing wherein the business gets a cash advance using their customer’s outstanding invoices. However, unlike invoice financing, factoring involves the business selling the invoices to the factoring companies (or factor). In other words, the business relinquishes control over the outstanding invoices. The borrower’s customer then pays the factor directly.

Like invoice financing, lenders will assess the creditworthiness of each of the borrower’s customers before agreeing to fund or purchase the accounts receivables, so they may be able to skip the credit check on the applying business.

Before agreeing to invoice factoring, you must be comfortable with the fact that your customers will be aware of your relationship with a factor. The factoring company will be the ones to collect the payments and communicate with the clients about late payments.

Purchase Order Financing

When a company receives a large order from one of its customers, funding the project out of pocket could create a cash flow strain on the company. To avoid cash flow issues, business owners apply for purchase order financing to help fulfill the order and deliver it to their customers.

Unlike other types of financing wherein the borrowers receive the cash up front, lenders offering purchase order financing transfer the funds to the suppliers directly. The suppliers then start manufacturing the products and deliver them to the customers once completed.

In most cases, lenders do not see the need to perform a credit check on the borrowing business because the financing is backed up by confirmed purchase orders from customers. They might require a credit check for your customers, but they usually don’t pull a hard inquiry into the borrowing business’ credit report.

Purchase Order Financing

Merchant cash advances are primarily for businesses that process large amounts of credit card sales each month. With this type of business financing, the lender advances cash to the business, which they then pay back using a percentage of their company’s credit card sales. The lenders may take a portion of your daily, weekly, or monthly credit card sales as payment for the cash advance, depending on the terms you and the lender agree to.

Again, the lender in MCA doesn’t usually require a credit check because the loan repayments are mainly based on your business’ future credit card sales.

 

No Credit Check Equipment Financing: What’s Next for You?

Credit checks are crucial in equipment financing because they allow the lenders to evaluate your behavior as a borrower. It also guides them in setting the terms for your equipment financing. If you’re looking for a no credit check equipment financing, you won’t be able to find a lender that offers one.

This shouldn’t stop you from pursuing equipment financing for your company, though. Alternative lenders might still be willing to work with small businesses with bad credit or lack enough credit history. Or, you can try finding a lender that only performs a soft credit check if your main concern is hurting your credit score after a hard credit inquiry.

If you still can’t qualify, you may also consider other financing options like invoice financing, factoring, purchase order financing, and merchant cash advance (MCA). These options usually don’t require credit checks, so you’ll still have a high chance of qualifying even with a bad or poor credit history.

Dane Panes
Dane Panes started freelance writing in 2017. Since then, she has written about a lot of topics for different businesses. She started writing for SMB Compass in March 2020 and has been a full-time content writer ever since. Now, she focuses mostly on topics related to entrepreneurship and business financing.

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