Navigating Bad Credit Construction Equipment Financing: Your Questions Answered

Expense management, Business Tools & Equipment
Joey Randazzo
October 26, 2021
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As a construction business owner, you rely on your equipment to get the job done — literally. When equipment breaks down or no longer does the job efficiently, you need access to new equipment quickly. 

But the cost of heavy equipment can be daunting, no matter what size business you own. 

To maintain a steady cash flow, how exactly do you go about getting new construction equipment financed, especially if you have bad credit? 

In this guide, we’re walking you through everything you need to know about bad credit construction equipment financing, including:

  • What options you have
  • Issues you may face; and
  • How Flexbase can help you overcome obstacles preventing you from getting the equipment you need 
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Construction Equipment Financing: Overcome The Challenges of Bad Credit With Flexbase

As a software company, Flexbase lives inside your business. We can automate invoices, resolve late payments, send legal notices when necessary, and have access to your transaction history, who your clients are, the legitimacy of your projects, and more. 

Whether you have good credit or bad credit, Flexbase can help you overcome obstacles that come with financing construction equipment

How Do Financial Institutions Determine If You Qualify For Construction Equipment Financing?

To qualify for a heavy equipment loan, your personal credit score should be at least 680. 

Yes, we said your personal credit score.
Why are lenders looking at your personal finances to determine your eligibility?
Well, lenders see this as a direct reflection of how responsible you are with money and to determine if you are a dependable borrower. 

Anything lower than a 680 will likely be considered a “bad credit score.”  If you have bad credit, your application for construction equipment financing is likely to be rejected, or approved with high-interest rates and difficult terms.

Bad Credit: Construction Equipment Financing Issues

If your credit score is above 680, financing should be easy. Equipment financing with bad credit, on the other hand, can create several issues for you. 

What are some of the issues that you can expect to encounter?

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Issue #1: Credit Unions Underwrite Exclusively With Personal Credit Scores

You’re applying for financing for your business, so it only makes sense that a credit union would base their decision off of your business finances, right? 

Unfortunately not. 

Credit unions use your personal information when evaluating whether or not a construction loan should be approved. Lenders generally take into account:

  • Personal credit score
  • Personal lines of credit
  • Comparable debts
  • Homeownership
  • Any derogatory items on your credit history like liens, bankruptcy, back-owed child support, or other collection accounts — these types of remarks typically result in an automatic application denial. 

Credit unions rely solely on your personal credit history to underwrite your financing profile. They rarely look at your business revenue or tangibles. 

Issue #2: Bad Credit Keeps You From Growing Capital

If your working capital — i.e. money you have available to meet your current financial obligations —  is maxxed out or tied up, a bad credit score, anything less than 680, can prevent you from qualifying for additional working capital in the form of loans or lines of credit.

For your construction company to flourish, you need working capital that increases over time.  

Issue #3: A Capital Crunch Can Restrict Your Scalability

The capital crunch inevitably has a domino effect. Without working capital, you’re putting a massive halt on your company’s momentum.

How’s this work? Let’s look at an example: 

Say you have the opportunity to bid on a big project, but the project is going to require you to purchase a new piece of equipment and possibly hire more workers.

If you have a good credit score, it might be pretty simple to apply for additional financing to cover the cost of taking on a new, big project. This, in turn, will allow you to take on the next project and the next. 

Unfortunately, if you have bad credit, financing that construction equipment needed to support new jobs and grow your business may seem impossible. 

How Do You Get Construction Equipment Financing With Bad Credit?

Your construction company needs that new piece of equipment as soon as possible — without it, you can’t get the

Your construction company has options for financing construction equipment. Two of the most common options are leasing and financing in full.  

Step 1: Research Bad Credit Construction Financing Options

Your construction company has options for financing construction equipment. Two of the most common options are leasing and financing in full.  

#1: Leasing

With a lease, no money or collateral down is required. You pay a monthly fee and rent the equipment for a set period. At the end of your lease, you can return the equipment, renew your lease, or buy the equipment for market value. 

You are essentially renting your construction equipment. This is especially useful if the piece of equipment you need isn’t something you are commonly using — you’re not paying for something that is just sitting and collecting dust. 

Leasing is also ideal if your business doesn’t have any capital, allowing for more flexibility. But keep in mind that leasing can end up costing your company more — a lot more — over time if it’s a piece of equipment you plan on using long-term. 

#2: Financing In Full

On the other hand, loans allow you to borrow the money upfront to buy the equipment you need right away.

However, for those with bad credit, construction equipment financing loans have their downside — lenders often require more from borrowers with low credit scores, including criteria like...

  • Minimum time requirements — generally, a business is required to have been in business for at least 2-3 years
  • Three years worth of tax returns
  • A written business plan

… and more, but we’ll discuss all the paperwork you’ll need in the next step. 

Whether you choose to apply for a lease or a loan, the heavy equipment financing you qualify for will ultimately depend on the type of equipment you need, how much working capital you have, and your credit score.  

Step 2: Gather Your Paperwork

Business owners ready to apply for financing for their construction equipment will need to start the process by gathering all the paperwork that a lender requires.

While this may not seem like the first step, you must have every document ready to go when the bank or credit union requests it — especially if you are applying for capital with bad credit. 

Documents business owners usually need when applying for a construction equipment loan include: 

  • Driver’s license or a government-issued ID
  • Business financials
  • Profit and loss balance sheets
  • Business certificate or license
  • Business and personal tax returns
  • Projected financials
  • Business overview
  • Business history
  • Proof of equipment insurance 
  • A quote providing details about the equipment you’re planning to purchase

Step 3: Fill Out the Financing Application With A Credit Union Or Bank

Once you’ve gathered all of the paperwork, and this probably felt like it took years to find, you’re ready to fill out a financing application with a credit union or bank. 

Banks and credit unions typically offer favorable interest rates to those who have a “good” credit score. If your credit score isn’t within their ideal range, you might still be approved but you can expect unfavorable terms and high rates.  

Step 4: Wait Several Weeks To Hear Back

You’ve done all you can do in order to purchase the equipment you need. 

No matter if you’ve chosen an online lender, a bank, or a credit union, it’s now time to play the waiting game. 

Underwriting loans involves evaluating whether or not you, as an applicant, are eligible for a loan. Underwriters use the information listed above to determine: 

  • What the loan amount will be
  • The interest rate you’ll pay, and
  • The term lengths you qualify for 

Applicants can expect to wait anywhere from three weeks to three months to hear back from a lender. And if your credit isn’t stellar, there’s a high chance the lender will be calling you with less than ideal terms and rates — if you’re approved at all.

Instead of spending weeks gathering documents, applying for construction loans, and waiting weeks — if not months — to hear back from your lender, let Flexbase help you get access to working capital faster.  

3 Ways Flexbase Enables Easy Equipment Financing With Bad Credit

Overcoming bad credit construction equipment financing woes can feel like an impossible feat, but Flexbase makes it easy. 

With Flexbase, you can get paid faster, increase your cash flow and say good-bye to the days of negotiating loans based on your credit. 

How can we help enable easy equipment financing, even with bad credit? Let’s take a look: 

#1: Flexbase Helps You Access Working Capital

At some point, you’re going to need access to working capital; every contractor does. 

But the reality is that most contractors go an average of 90 days before receiving payments for completed work. So it’s no wonder why contractors rely on lenders to pay employees or purchase construction equipment.

Let Flexbase help you access the working capital you need to purchase construction equipment by connecting you with one of 85 different lenders anonymously— without the tedious steps you’d have to take when applying on your own.

 By letting Flexbase connect with different lenders, they can base your decisions on accurate information about your business. 

#2: Flexbase Helps You Manage Your Cash Flow

Your business needs to build and maintain good credit, but cash-flow struggles due to slow payments, lack of capital, etc., can lead to negative impacts on your business. 

Improve your business’ credit by letting Flexbase help manage your cash flow. Flexbase can integrate all of your company’s financial information, making getting approved for construction equipment financing, even with bad credit much easier. 

Our application results in faster payments from clients, improved credit scores, and less time spent applying for equipment loans and waiting for a response from lenders —  with Flexbase, you can see your updated loan status in as little as 24 hours. 

#3: Flexbase Automates Your Construction Invoices

With Flexbase, manually invoicing clients just became a task of the past. Flexbase handles: 

  • Sending invoices and receiving payments faster
  • Reminding clients that payments are due
  • Tracking down late payments
  • Sending payment data and other relevant information to our lenders quickly and efficiently. 

What’s this mean for you? 

It means an increase in cash flow, less payment lag time, and better rates and terms on construction equipment financing. 

Get started with Flexbase for free, today. 

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