Running a business, whether its a small business or a big business involves many challenges. One of the biggest challenges that a start up business owners must face is finding financing for large purchases. For business owners who have sufficient working capital, gathering all the necessary equipment needed isn’t a big problem. But for those who work on a limited budget, purchasing equipment could mean using most of their working capital.
Which is a big mistake when you are starting a business. Working capital is hard to come by as a startup. Many banks want you to be in business 3 – 5 years before they will give you a working capital loan.
Obtaining start up business equipment financing of over $100,000
Financing can prove to be a big obstacle in industries such as manufacturing that require expensive specialized machinery to get jobs done. If you are a start up business owner in need of manufacturing equipment, the cost of that equipment can be prohibitive. While you have lots of potential business. The banks are worried that as a start up, the risk of your closing your doors within 2 years is very high!
Obtaining a large equipment lease of $100,000 on or more, on 1 lease is extremely difficult thing to do. Ordinarily, we can get this done on 3 equipment leases. Sometimes 4 depending on the pieces of equipment that need to be financed. The reason why, is that many start up banks will limit the amount of equipment financing to $50,000 for a new business. There have been times when we have a start up business with a business owner w/ excellent credit and strong financials where we have done it on one lease. But most of the time, its more realistic to expect that your lease request will be spread out over several leases. Thus mitigating the risk to the banks.
Obtaining start up business equipment financing for deals over $100,000 can be difficult and need to be handled with care. Here are a few things you need to keep in mind when you start looking for a company to help you.
- Fill out your application completely. Don’t forget to add ALL owners of the business. Even if they have bad credit. An equipment lease is a legal contract and banks don’t like finding out after they fund a deal that there were other owners in the business. Some banks may call the lease due at that moment!
- Provide full financials. When you are seeking a large lease or loan, your bank will want to see proof that you can pay. I’ve had clients become upset because the bank wanted their personal tax returns along w/ 3 months banks statements. You have to remember that start up business financing is considered high risk. Its only natural that they will want to make sure you can make the payments if your new business takes a while to get off the ground.
- Credit: Make sure you have comparable credit. Recently we had several people with past bankruptcies apply. And we could have gotten them financed, but they never re-established lines of credit. To fix this you can:
- Obtain a co-signer. Someone w/ a strong credit history. Definitely stronger than yours.
- Provide additional collateral – if you own some equipment or have a paid off vehicle you can use this as additional collateral. We have had clients use things like cars, boats and cash.
- If you have bad credit. If you have bad credit, you should try to fix the problems before applying. Although its not impossible to obtain financing with a low credit score. When you are talking about over $100,000, realistically its going to be very difficult without additional collateral, high security deposits or having to accept a 36 month lease instead of a 48 or 60 month lease.
- Excessive Inquires: Try to talk to the bank before you apply. You want to avoid having an excessive amount of inquiries on your credit report.
- Ownership: Make sure you include everyone who is a part of your business on the equipment lease. Before funding they will pull a copy of your articles of incorporation from the SOS website anyway. While on the surface it may make sense to drop someone from the business who is making it difficult to get approved. Its not 100% honest. You don’t want to make your bank wonder about what else you maybe hiding.
- Absentee ownership. Where is your plant? If your plant is in a different state you will find it difficult to find a bank to finance your request as a start up. More established businesses can get away with having their plant in another state. It just looks like a business expansion. But most banks like to work w/ start up business owners who will be located in the same area as the business.
- Experience. Banks LOVE to read about your experience. You want to display all your experience.
- Purchase orders. If you have purchase orders you want to let your bank know that as soon as you get the equipment you have clients and repayment will not be a problem.
If you are seeking a large lease, please feel free to contact us! We can help! Click here to apply online (secured form) or click here to send us an email! You can also call us at 1-888-308-7160 between 9 – 4 PST to speak with an agent!
Liz Roberts has been in the business financing industry for 20+ years. She got her start in banking, went on to consumer and commercial collections and then onward to becoming a senior credit analyst for several small leasing companies. She has also been a freelance writer for 15 years and has written about business and consumer financing on several blogs. She also maintains a low carb living blog.