How Does a Lender Determine Finance Terms on Used Equipment? (Part 1!)
I am often asked by potential buyers of used equipment, “what will my terms be?” after I am given their most recent credit karma score. While a credit score definitely holds value and is something that every lender looks at, there is other criteria that is very important to them.
Number of Trade lines – The more the better! These are credit accounts that show up on your credit report. While personal responsibility often tells us that credit is not a good thing, when you are looking for commercial financing lenders are definitely looking for a history of credit. In regards to credit cards the percentage of utilization of your card limit has a big impact as well. Having a number of cards all maxed out or close to it is a huge problem.
Comparable Credit – I often see accounts for rental furniture, tires etc. that are current but was for maybe $1,000 when taken out. That definitely is a positive to a lender but not near as much of a positive as a past car loan or other credit vendor for $40,000. That might be a car or anything else personal or business. If you are looking for a $40,000 Dump truck, for example, the lender puts a lot of value on that comparable credit.
Outstanding Judgements and Liens - These will definitely bring down your score but I often see other good credit off-set this. What is critically important is if there is a payment plan that has been set up that a lender can see. This is most applicable with tax liens and child support. Almost all lenders will not offer financing if there are outstanding taxes or child support.
Bankruptcies – Different lenders have different criteria and it also matters whether it is a chapter 7 or 13. (That is another article) A bankruptcy should not discourage anyone from applying for credit as lenders have proven to be somewhat sympathetic, especially during the 2007 – 2010 time period. Bankruptcies must be discharged although with a Chapter 13 there often are exceptions.
Delinquencies – A slow payment history on any credit account will affect your score but accounts that were 30-120 days late 5 years ago are looked at much differently than if they are the past 6 months. While this ultimately affects your credit score anyway, some borrowers have a number of ‘good’ criteria that their score is still respectable even with delinquencies. A lender, however, does strongly look at this area.
What else? – This is part one of a two part article. Above is all of the credit scenarios that are taken into consideration to obtain financing and eventually has a big part in determining your final interest rate. Next month we will discuss the criteria outside of credit that mean a lot to lenders.
It is important to understand that while great terms on a used equipment loan is very much preferred and something to be proud of, I can accommodate almost all credit situations. Ultimately every small business owner needs to compare the Return On Investment (ROI) with the terms they receive with a goal of growing their business and credit history. I have told many of you reading this now that the next time we do business I will pursue a lender that offers better terms as you improve your business and credit situation.
To a successful month,
"Millions saw the apple fall, but Newton was the one who asked why."
Did You Know???
Facts About Earth
- Earth is the third planet from the sun in our solar system. Its name comes from the the old English and Germanic words meaning ‘the ground’.
- By researching our planet’s rocks, scientists have calculated the Earth to be around 4.5 billion years old!
- Earth orbits around the sun. And it does so at some serious speed –– around 30 kilometres per second.
- The Earth’s diameter measures a huge 12,800 kilometres, making it the fifth largest planet in the solar system. Jupiter, Saturn, Uranus and Neptune are even bigger!
- People often think of Earth as a gigantic sphere. But, in fact, its shape is more like a squished ball that bulges out at the equator.
Just for Laughs!
Sherlock Holmes and John Watson are camping on a case they are investigating. After putting up the tent, having a good dinner, and drinking a bottle of wine, they go to sleep.
In the middle of the night, Holmes wakes up and nudges his faithful friend.
“Watson, look up at the sky and tell me what you see,” Holmes says, shivering.
“I see millions and millions of stars, Holmes,” replies Watson.
“And what do you deduce from that?”
Watson ponders for a minute.
“Well, it tells me that there are millions of galaxies and potentially billions of planets. Somewhere in the universe with so many billions of stars similar to the sun, there is a high probability that some of these stars have Earth-like planets. And assuming the Earth is typical, some may have developed intelligent life. It means that humanity, may not be alone in this vast cosmos. What did you deduce Holmes?”
Holmes is silent for a moment before he replies.
“Quite,” he says. “Though my more immediate concern is the fact that, clearly, someone has stolen our tent.”