For business owners, the equipment they choose to finance is often used as collateral for loans and lines of credit. However, collateral isn’t the only factor that achieves approval for financing. Lenders require more complex reasons for extending a loan or credit line to companies. Reviewing the 5 factors that affect equipment finance interest rates helps business owners define what to expect when approaching a lender.
The Company Owner’s Credit Rating
Lenders review the company credit rating for establishing creditworthiness. All three credit scores are reviewed, and the company’s credit history is examined. All existing debts must be up to date without delinquencies to achieve the highest ratings. However, companies with excessive debts might not qualify if the line of credit isn’t affordable. The purpose of the assessment is to determine if the company pays its monthly obligations on time and is responsible when managing their finances.
How Long the Company Has Existed
The operational history of the company is a viable factor for determining if the business is financially fit for a new line of credit. New companies are less likely to get extensive lines of credit after they are established. A long history of conducting business shows that the business owner is committed to his or her investments and take the necessary steps to achieve success. Lenders are more attracted to well-established businesses with a long history of proper financial management. To learn more about how the company’s history affects its creditworthiness read more details over at equifyfinancial.com now.
The State of the National Economy
The state of the national economy is affected by how often businesses open new lines of credit, the number of startup companies emerging, and if current owners will choose to expand into new markets. Decreased interest rates are possible if a greater number of businesses are seeking financing from lenders for their equipment. A decrease in the establishment of new credit lines has a detrimental effect on financing options and a business owner’s ability to qualify for new financing.
The Financial Status of the Company
Lenders won’t extend financing or loans to companies that aren’t profitable. A statement of earnings is required when reviewing the company’s creditworthiness. Some lenders want financial records for at least three years. Business owners must show that their business venture has substantial incoming profits to cover the cost of a new line of credit in addition to existing obligations. The annual profits of the companies define the financial fitness of the company and if lenders should approve financing.
What Lenders are Charging on a National Scale
The Federal Reserve establishes national interest rates for all business financing. Booms in the economy lead to higher interest rates for business owners when seeking a loan to buy equipment. Local lenders increase their rates according to the current national scale.
Financing for business equipment requires the equipment to meet specific standards and regulations. Lenders must determine that the equipment meets the standards and regulations in addition to presenting the lender with a worthwhile investment. Businesses that need financing must provide information about their current credit ratings and financial status. The operational history of the company defines if the business itself was a successful venture, and the owner is committed to the investment. The state of the national economy and current interest rates play a role in defining what rates are available through local lenders. To start a new line of credit, all business owners must meet all the necessary criteria to qualify.