Startup Equipment Financing for Startup Owners with Bad Credit

Here at Startups #nofilter we get inquiries all the time about how to help struggling startups secure equipment financing especially when they have bad credit lines. No worries at all we are here to guide you!

startup equipment financing for outdoor company construction

Pictured: Startup equipment for construction startup company

We wrote the guide below from the lens of an equipment financing loan officer who would be in charge of giving you your financing in light of your poor credit.

The 5 Steps for Securing Equipment Financing for a Bad Credit Startup:

  1. Determine equipment needs and costs

    • As a first step, make a detailed list of all the equipment you need to purchase and operate your business. This could include machinery, tools, furniture, technology, appliances, vehicles etc. Research the exact models and prices for each item. Common sources are equipment manufacturer/dealer websites or platforms like Alibaba. For example, a food truck startup might need:
    • Food truck vehicle: $75,000 (https://g.co/kgs/cUfNYV)
    • Cooking equipment: $15,000 (https://www.webstaurantstore.com)
    • Point of sale system: $2,500 (https://www.squareup.com)

Total equipment purchase amount = $92,500

  1. Explore financing options

    • Next, research different equipment financing options like loans, leases and rent-to-own. Compare interest rates, payment timelines and overall costs offered by banks, credit unions, manufacturers and specialized lenders. For example, the food truck startup could find:
      • 5 year equipment loan at 10% APR with 20% down payment
      • True lease with option to buyout equipment after 3 year term
      • Narrow down 2-3 financing offers for further evaluation
  1. Prepare documentation

  2. Apply and seek financing terms

  3. Accept funding and purchase equipment

    • Finally the lender will fund the lease, loan or other financing instrument for your business to move ahead with acquiring the essential equipment. Coordinate delivery and setup, making sure everything aligns with your original plans.
    • Review and accept loan/lease terms
    • Plan equipment procurement
    • Place equipment orders

According to the Equipment Leasing and Finance Foundation, in 2021 ~80% of U.S. companies used equipment financing allowing them to start and expand operations. Following these best practice tips and steps can help ensure your startup’s success in securing necessary funding. Please let me know if you need any clarification or have additional questions!

3 Interesting Statistics Related to Equipment Financing for Startups:

  1. In 2021, $898 billion was invested globally in equipment leasing and financing
  2. 72% of U.S small businesses use some form of financing for equipment purchases
  3. Top industries using equipment financing include agriculture (46%), construction (45%), transportation (25%).

What are the Risks with Bad Credit Equipment Financing for Startups?

There are big time risks associated with trying to secure equipment financing with poor credit history – no matter what startup niche you are in!

  1. Low credit score leads to denial for financing
  2. Higher interest rates
  3. Shorter repayment terms

The main alternatives to avoid these financing risk with poor credit include:

  1. Improving personal credit rating over 6-12 month period before applying
  2. Making large down payments above 50% to demonstrate commitment
  3. Seeking a cosigner with better credit to support the application

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