In the segment of commercial lending known as equipment leasing / equipment financing, rates vary widely. There are many traditional bank lenders active in this space for bankable credits with equipment financing rates that are what you would expect … close to bank rates. On the other end of the spectrum, we find boutique lenders that specialize in asset-based underwriting for challenging credits. These lenders may be as high as 40% and use asset backed parameters for credit decisions. This, in short, means that they look to extra collateral to secure their lending position.
So ~ we see a rate range of 4.5% – 40% ~ let’s now discuss the points in between.
B Credit Lenders
B Credit Lenders assist those customers that have a credit blemish but not a serious credit challenge. We find that lenders in this realm offer rates that are often risk-based and range from 8%-17%. These lenders may use credit score or use a traditional approach to assessing risk. Let’s explore these methods.
In short ~ credit scoring often assesses only factors like Business Credit Reports, Personal Credit Reports, Time in Business, and other factors that are important to the lender.
Traditional Lenders will look at all relevant factors of the business credit application. Things like Credit (or sometimes Character), Collateral, Capital, Conditions of the marketplace, Capacity to repay the lease or loan ~ these are commonly known as the 5 C’s of Credit. https://www.investopedia.com/terms/f/five-c-credit.asp
Beyond A & B Credit Lenders you will find a host of specialized lenders that provide capital for varied needs. Here is a brief list of a few reasons for specialty financing:
Start-up Business Funding:
Capital for new businesses is often difficult to find and rates are usually higher than for B credits unless bank funding is involved.
Specialty Equipment Financing:
Funding for specialized equipment fills a unique niche. These lenders are sometimes part of an equipment manufacturer or loosely affiliated. Often, these specialized lenders are simply identifying and solving a need. Rates will cover A, B, & C Credits.
Credit Challenged / Non-traditional Lenders:
Lenders that provide capital to more challenging credits often provide funding for equipment for companies that have experienced significant business credit challenges. Rates offered by these lenders are often over 20%.
Boutique Lenders, of all kinds, provide a wide variety of funding & rates commensurate with the underlying risks.
So, here is our summary:
The majority of transactions funded in the equipment financing industry will be under 12%. From there, we move up the ladder of specialty, risk-based underwriting, and lending for challenging credits. Given our long tenure in the industry, we can help companies, whether established or new, whether A, B, or C credits better manage the extensive options. To that end, call us anytime to discuss your needs.