How to Qualify for Equipment Financing

Equipment Financing is a specialized type of loan that helps businesses purchase or lease equipment needed to run their operations without depleting cash reserves. The equipment itself serves as collateral, making it easier for businesses to qualify. Whether you’re in construction, manufacturing, retail, or any industry that relies on heavy machinery or specialized equipment, equipment financing allows you to spread out the cost over time, while immediately benefiting from the new equipment.

This guide outlines the key qualifications and steps to secure equipment financing with FundLocal.

Equipment financing provides businesses with the capital to purchase or lease equipment, from manufacturing machines and delivery trucks to office technology and construction tools. Unlike traditional loans, equipment financing is secured by the equipment itself, which serves as collateral. This means you may have a higher chance of approval, even if your credit history isn’t perfect.

Qualifying for equipment financing depends on several factors related to your business’s financial stability, the type of equipment you’re purchasing, and how the loan will be structured. Below are the primary requirements that FundLocal considers when evaluating your application for equipment financing.

1. Time in Business

To qualify for equipment financing, your business should have been operating for at least 6 months. This ensures that your business has an established track record and the financial capacity to manage the loan.

• Minimum Requirement: 6 months in business

• Why It’s Important: A business that has been operating for at least 6 months demonstrates financial stability and a track record of generating revenue, which increases the likelihood of approval.

2. Annual Revenue

Your business must meet the minimum annual revenue requirement of $100,000 to qualify for equipment financing. This indicates that your business generates sufficient cash flow to cover operating expenses and repay the loan.

• Minimum Requirement: $100,000 in annual revenue

• Why It’s Important: Revenue is a key indicator of your business’s ability to repay the loan. A steady income stream suggests that you’ll be able to manage loan payments on top of other operational costs.

3. Recent Business Bank Statements

FundLocal requires businesses to submit 3-4 months of recent business bank statements as part of the application process. These statements help us evaluate your business’s financial health and cash flow, ensuring that your business can handle the loan payments.

• Standard Requirement: 3 months of bank statements for most states

• Special Requirement: 4 months of bank statements for businesses in California, New York, and Utah

• Why It’s Important: Bank statements give us insight into your business’s cash flow, daily balances, and overall financial stability. Consistent deposits and a healthy account balance improve your chances of qualifying for equipment financing.

4. Equipment Type and Cost

To qualify for equipment financing, you’ll need to provide details about the equipment you intend to purchase. This includes the type of equipment, manufacturer information, and the cost. The equipment itself serves as collateral for the loan, which means its value is an important part of the approval process.

• Minimum Requirement: Clear description of the equipment being purchased, including cost estimates.

• Why It’s Important: The type of equipment and its resale value play a role in determining the loan terms. Equipment with a high resale value may make it easier to qualify and secure favorable terms since the equipment serves as collateral.

5. Business Location

Your business must be based in the United States to qualify for equipment financing through FundLocal. Specific state regulations may apply, particularly in California, New York, and Utah, which require additional documentation.

• Minimum Requirement: U.S.-based business

• Why It’s Important: State regulations impact lending practices, so ensuring your business complies with local laws is essential for smooth approval.

6. Business Structure and Legal Status

Your business must be legally registered and compliant with local, state, and federal regulations. This includes operating under a recognized business structure such as an LLC, corporation, or sole proprietorship, and holding any required business licenses or permits.

• Minimum Requirement: Legally registered business (LLC, Corporation, Sole Proprietorship, etc.)

• Why It’s Important: A valid and compliant business structure ensures that your business is legitimate and able to legally enter into loan agreements. Lenders need assurance that your business is operating within the law.

7. Creditworthiness

While FundLocal does not require a hard credit check for the initial quote, a soft credit check may be performed during the approval process. This inquiry will not affect your credit score but helps us evaluate your business’s ability to manage the loan. In some cases, personal credit may also be reviewed.

• Minimum Requirement: No hard credit check for quotes; soft credit check for final approval.

• Why It’s Important: A soft credit check helps us assess your credit history and financial responsibility without negatively impacting your credit score. A solid credit history can help secure better loan terms, but perfect credit is not required.

8. No Open Bankruptcies

Your business should not have any open or active bankruptcy proceedings to qualify for equipment financing. Businesses that have successfully exited bankruptcy may still qualify, depending on their financial stability post-bankruptcy.

• Minimum Requirement: No active bankruptcies

• Why It’s Important: Open bankruptcies indicate significant financial instability, making it difficult to qualify for financing. However, if your business has emerged from bankruptcy, you may still be eligible based on your current financial health.

If you meet the basic eligibility criteria, the next step is to apply for equipment financing. Below is a step-by-step guide on how to qualify:

Step 1: Provide Basic Business Information

You’ll need to provide essential details about your business, including:

• Business name and legal structure (LLC, Corporation, Sole Proprietorship, etc.)

• Industry: The type of business you operate (e.g., manufacturing, construction, retail)

• Annual revenue: Your estimated or actual annual revenue

• Time in business: The length of time your business has been operating

Step 2: Submit Equipment Details

When applying for equipment financing, it’s essential to provide detailed information about the equipment you plan to purchase:

• Equipment type: Describe the equipment you’re purchasing (e.g., machinery, vehicles, technology).

• Equipment cost: Provide a quote or estimate of the total cost of the equipment.

• Manufacturer or vendor information: Include details about the equipment manufacturer or supplier, if available.

Step 3: Submit Business Bank Statements

FundLocal requires 3-4 months of recent business bank statements to verify your business’s cash flow and financial activity. These documents should show:

• Revenue patterns: Consistent deposits demonstrate steady cash flow.

• Daily balances: A positive daily balance indicates strong financial health.

• Expenses: Your business’s ability to manage operating expenses effectively.

Step 4: Soft Credit Check (If Applicable)

As part of the application process, FundLocal may conduct a soft credit inquiry to review your business’s creditworthiness. This will not impact your credit score and is used to assess how well you’ve managed previous loans or financing arrangements.

Step 5: Receive a No-Obligation Quote

Once your application is submitted, FundLocal will provide you with a no-obligation quote. This quote will include:

• Loan amount: The total amount of financing available to purchase the equipment.

• Interest rates: The applicable interest rate for the loan.

• Repayment terms: The loan term and repayment schedule, typically based on the expected lifespan of the equipment.

Step 6: Accept or Decline the Quote

After reviewing the quote, you can either accept the offer and move forward with the purchase or decline it if the terms do not meet your business’s needs. There is no penalty or obligation to proceed if you decide to decline.

To increase your chances of qualifying for equipment financing and securing favorable terms, here are a few strategies:

1. Build Strong Business Credit

• Improve your business credit score by making timely payments on existing loans and reducing any outstanding debts. A better credit score can help you qualify for lower interest rates.

2. Maintain Positive Cash Flow

• Ensure your business has strong cash flow by managing expenses efficiently and maintaining consistent revenue. Healthy cash flow is a key factor in equipment financing approval.

3. Choose Equipment with High Resale Value

• Opt for equipment with a high resale value or that is essential to your business’s operations. This increases the likelihood of approval, as the equipment itself serves as collateral.

4. Prepare Accurate Documentation

• Submit clear and accurate financial documents, such as bank statements and equipment quotes. Having organized records speeds up the application process and improves your chances of approval.

If your business meets the eligibility criteria and you’re ready to apply for equipment financing, FundLocal’s application process is quick and straightforward. By providing basic business details, equipment information, and your business bank statements, you can receive a no-obligation quote and move forward with purchasing the equipment your business needs. If you have any questions, our support team is here to help!