No Credit Check Equipment Financing

No Credit Check Equipment Financing: Is It Possible?

Ezra Cabrera | November 13, 2023


    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 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.

    Where to Get No Credit Check Equipment Financing

    There are a number of places where you can get no credit check equipment financing. Here are a few options:

    Online Lenders

    There are a number of online lenders that offer no credit check equipment financing. These lenders typically have a quick and easy application process, and you can often get approved for a loan within a few days. Some popular online lenders include:

    Equipment Vendors

    Many equipment vendors offer financing options, including no credit check financing. This can be a good option if you're already familiar with the vendor and know they have good-quality equipment.

    Equipment Leasing Companies

    Equipment leasing companies offer another option for no credit check equipment financing. When you lease equipment, you don't own it but make regular payments to use it. This can be a good option if you don't need to own the equipment outright.

    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.

    Frequently Asked Questions (FAQs)

    What credit score is needed to buy equipment?

    The credit score you need to buy equipment varies depending on the lender and the type of financing. Some lenders may accept credit scores as low as 500 for equipment loans, while others prefer scores around 660 or higher for term loans.

    Additionally, some online lenders offer "no credit check equipment financing." This option is for businesses with poor or no credit history. Instead of focusing on credit scores, these lenders assess your application based on cash flow and equipment value. However, no-credit-check financing often comes with higher interest rates and fees. Carefully consider the pros and cons before choosing this option.

    What credit score is needed to buy a mini excavator?

    The credit score required to purchase a mini excavator varies depending on factors like the lender, financing terms, and your financial situation.

    Typically, a credit score of 660 or higher is considered good and can improve your chances of favorable financing. Some lenders, however, may accept lower scores, possibly around 500, especially if you have a strong business history or Collateral.

    Lenders also consider business revenue, cash flow, and debt-to-income ratio. The type of financing you're seeking, whether it's a loan or lease, can also influence credit requirements. Contact potential lenders or a financing specialist who can help answer any questions.

    How hard is it to get a loan for equipment?

    Getting a loan for equipment isn't typically difficult, especially when dealing with online lenders. Online lenders often have straightforward application processes and more flexible eligibility criteria. However, the ease of getting a loan can still depend on factors like your credit history and business revenue. To increase your chances of success, compare lenders, understand their terms, and provide the required documentation.

    How can I get a loan with no credit and pull?

    You can secure a loan without a credit check from specific online lenders and federal credit unions. These lenders may provide personal loans without scrutinizing your credit history, which benefits those with no credit or a poor credit score.

    Another alternative is using paycheck advance apps for borrowing money. However, be cautious, as no-credit-check loans often come with higher costs and the potential for a debt cycle. If feasible, building your credit before seeking a personal loan is advisable.

    About the Author

    Ezra Neiel Cabrera has a bachelor’s degree in Business Administration with a major in Entrepreneurial Marketing. Over the last 3 years, she has been writing business-centric articles to help small business owners grow and expand. Ezra mainly writes for SMB Compass, but you can find some of her work in All Business, Small Biz Daily, LaunchHouse, Marketing2Business, and Clutch, among others. When she’s not writing, you’ll find her in bed eating cookies and binge-watching Netflix.