Here are some tips to know when considering financing.
Tip #1: Welcome to the Commercial financing market, it’s a completely different world than the consumer market where financing a car or home is easy peasy. The Commercial Equipment Financing Industry has its own set of risk scores which have absolutely nothing to do with or even align with the consumer market. If you are a person who has a 700 score, in that case, you could walk into Mercedes, get a really low rate, and drive away that same day.
That’s not the case with Commercial Equipment Financing because Commercial Equipment is used as an asset to produce revenue for a business.
Tip #2; The specific Industry you are in matters. Meaning, are you in trucking? If so, do you run long haul or short haul? Do run Dump trucks? Do have Pump trucks for your waste removal business or do you run Box Trucks? Are you in the Tree Trimming Industry and need a boom truck?
The collateral matters to the underwriter. Even the collateral has different factors when determining the terms an underwriter will approve you for. Every Industry is assigned a risk score, the lower the risk score, the better the interest rate and better credit terms, the higher the risk the higher the rate and you might have to put money down depending on your credit.
Tip# 3: How long have you been in business? Are you start-up, are you a few years into or have you been around forever? This matters in the eyes of the underwriter. A Start-up company will always have to come up with a down payment, how much depends on your credit score and credit history.
Tip 4# Comparable Borrowing history or Comp Credit as we refer to it in the industry is also taken into consideration. This is just a fancy word for saying have you financed any Commercial equipment in the past?
Tip #5: I bet you already know this question, What is your personal credit score? If you are a brand new or newer business or even an established business, personal credit score plays a big role to in the underwriter’s decision. The higher your credit score, the better terms and the better financing contracts that are available. Usually, if your personal credit score is under 650 you can expect a down payment required especially if you are in the Trucking Industry.
However, if you are in construction or another industry getting a $0 down approval is very possible, especially with a 630+ credit score. The reason being is lenders like the equipment and the industry have a lower risk of default, This means they are willing to issue a better credit approval to someone who has okay credit.
It is extremely unfortunate that some financing companies engage in questionable practices.
There are thousands of financing companies out there that represent themselves as the “Lender”. You might have heard the term “Direct Lender” before???,,,
Well,,,,, this term is used very loosely and the reason why I say that is when most people hear the word “Direct Lender” they assume the finance company they are speaking to is the actual lender that is lending their own money or putting a lien the on the collateral,,,,,,,
That is definitely not true!
The truth is,,, there are hundreds of financing companies out there and only so many actual lenders (lienholders) that lend their own money and place a lien on the equipment when it’s financed. It’s similar to the mortgage industry, where there are 100’s of mortgage brokers out there however, there are only so many banks that hold the note,,,
In a nutshell,,,,all the finance companies go to the same banks (lienholder) to get customers credit approved.
This a great moment to share with you one of the biggest scams in the book! I call it “The send me your money” scam.
The red flag on this scam is once you have verbally agreed to the credit terms or a phony credit approval (that’s another scam), they will ask you to send them money before ordering your closing documents.
Here are some of the more obvious lines they use:
- Please send me your “commitment fee”
- Please send in your “consulting fee”
- Please send me the “documentation fee’
- Please send in the “Professional fee”
- Please send me your “first payment”
There is a pattern here and it starts with ,,Please send me your……!!!,
No finance company worth even spending a minute of your time working with will ever ask you for money upfront before you even get to read the contract.
If you find yourself in this situation,,,run quickly in the other direction,,, and find another company to work with!
For more information on the Red Flags to look for please click the bottom
We will furnish you with a thorough guide to assist you in safeguarding against financial scams.