How to Improve Your Chances of Securing Startup Equipment Financing

Starting a new business is thrilling, but it comes with plenty of challenges. One of the biggest hurdles for many entrepreneurs is securing financing to purchase the necessary equipment and assets to get their business up and running. Unlike established businesses with years of financial records, startups face greater difficulty convincing lenders to take a risk on an unproven concept.

Fortunately, with the right preparation and persistence, your startup can improve its chances of getting approved for equipment financing. Here are some tips to boost your odds:

Know What Lenders Look For

While every lender has its own approval criteria, most look for:

• Strong personal credit scores – They will review your personal credit history to gauge your financial responsibility. Scores above 700 improve your chances.
• Down payment – Putting 10-30% down shows you have “skin in the game” and lowers the lender’s risk.
• Business plan – A detailed plan explaining how the equipment will generate revenue can help convince lenders your idea is viable.
• Industry experience – Background working in the industry reassures lenders you have the knowledge to succeed.
• Collateral – Other business assets or personal guarantees can secure the financing if you default.

Prepare a Convincing Business Plan

Your business plan is crucial for demonstrating your startup has a sound strategy and the equipment purchase will be profitable. Key elements to include:

• Executive summary
• Company description
• Market analysis
• Competitive analysis
• Marketing strategy and sales projections
• Operations plan
• Management team
• Financial projections
• Funding request

Thoroughly explain how the equipment will enable your business model and contribute to growth. Provide realistic forecasts supported by market research.

Build Your Credit History

Work on improving your personal credit score in the months or years before applying for financing. Pay all bills on time, lower credit utilization, and correct any errors on your credit reports. Maintaining scores above 700 will provide a boost.

If you don’t have established personal credit, consider adding a co-signer with strong credit to your application. Their good credit can offset your limited history.

Highlight Relevant Experience

Lenders want to see you have experience in the industry you’re entering and the ability to operate the equipment. Play up any prior jobs, education, or training on your resume that prepared you to run this business.

For example, if you’re starting a landscaping company, highlight past experience on landscaping crews and any horticulture classes you’ve taken.

Provide Collateral

Since startups lack financial records, offering collateral can provide extra security. Collateral can include business assets, equipment, or vehicles you already own, or personal assets like your home equity. Ask friends or family members to act as guarantors and pledge their assets as collateral too.

Seek a Cosigner

If your credit score or collateral are lacking, bringing on a cosigner with a strong financial profile can improve the chances of getting approved. Often a spouse or business partner will co-sign. They become equally responsible for repaying the financing if you default.

Shop Multiple Lenders

Applying with several specialty lenders maximizes your chances of getting financing. Since each lender has its own criteria and risk tolerance, one may approve you while others reject you. Cast a wide net and compare offers.

Online lending marketplaces like National Business Capital allow you to complete one application then get matched with suitable lenders. This simplifies the process.

Consider Vendor Financing

If banks and specialty lenders reject you, look into vendor financing directly through equipment dealers and manufacturers. While interest rates are often higher, approval is easier for startups since the equipment acts as built-in collateral.

Demonstrate Skin in the Game

Putting down a sizable down payment shows lenders you believe in your business enough to invest your own money. Borrowing the full amount comes across as riskier. Strive for a down payment of 20-30% if possible.

Highlight Flexible Options

Seeking out financing products like lease-to-own arrangements can give lenders more confidence since their risk is lower. You can explain how these flexible options benefit both parties.

Consider Unconventional Lenders

If traditional lenders decline you, consider more open-minded alternatives like peer-to-peer lending platforms and community development financial institutions which focus on underserved communities.