How Credit Affects Your Ability To Obtain Business Supplies

We’ve all been there — our credit score makes an impact on big purchases in our personal life as well as with purchases for our business. If you’re looking to lease equipment for your business, you may be wondering if your credit score will impact your ability to obtain the supplies you need. In this blog, we will explore how credit can affect your ability to secure the supplies and equipment necessary for your business to succeed. 

What does “good credit” mean?

Your credit report is an unbiased picture of your credit history—how you’ve handled money in the past. It answers questions lenders ask when they want to determine risk. It’s also important to note that in the case of partnerships and sole proprietors your personal financials are taken into consideration, and for corporations only your business financials are considered. 

Here are some of the factors that impact your credit score:

• Payment History: Making payments on time is the biggest factor in determining your credit score. In other words, a good track record of paying off loans and other bills on time will help increase your credit score.
• Amount of Debt: Your total amount of debt is also important to your credit score. When you have a lot of different debts, it can make it harder for lenders to assess how much risk you present as a borrower, which in turn can lower your credit score.
• Credit History Length: A longer credit history can help to boost your score, as it allows lenders to see how you have managed debt over time.
• Types of Credit Used: This is another important factor, as it shows creditors that you are able to responsibly manage different types of debt. Types of credit used includes credit cards, loans, vendor payments and any other type of loan.

It's important to understand that all of these factors work together in order to maximize your credit score so you can get the best possible lease agreement. During the leasing approval process, a lender will look at all aspects of your credit history. Negative credit events within the last five years, such as filing for bankruptcy, filing a consumer proposal, undergoing debt consolidation or frequently defaulting on payments, leasing will not be an option. Many leasing companies also like to have at least two years’ worth of business activity to base their lending decisions on, but others such as Arbutus Capital will provide leases to newer businesses. If your business documentation is insufficient, you may need to provide personal financial documentation.

How to Improve Your Credit Score

It pays to do what you can to improve your credit rating before applying for a lease. Boosting your rating can take time and dedication, but here’s what you can do to get started. 

• Get a copy of your business credit report and check for errors or inaccuracies. Mistakes can lower your credit score, so carefully review yours at least once a year. 
• Reduce your debt-to-income ratio. Pay off any manageable outstanding balances and/or increase your credit card or line of credit limits. The extra available unused credit will make you look like a better risk and increase your credit score.
• Check that your regular suppliers and vendors share payment data with business credit-reporting agencies. The more positive payment history on your file the better.
• Make all payments on time. Payment history is the most important factor in determining your credit score, so it's essential to pay all of your business bills on time. 
• Don’t open too many new accounts at once. Applying for multiple new accounts in a short period of time can lower your credit score, so try to limit the number of new accounts you open.

There are no quick fixes to improving your credit score, so it's important to be patient and persistent in trying to build a good credit history. 

Why Credit Impacts Equipment Leasing

Your credit report is a judgement about your financial health at a specific point in time, illustrating how you’ve managed money in the past which can help a lender determine the risk you present compared to other customers. Equipment leasing is a powerful growth tool for your business that provides more flexibility than a traditional bank loan — and is also easier to get. That said, your credit score still has a part to play when it comes to whether or not you’ll be approved for a lease. A leasing company is taking a risk by lending you equipment, and your credit score is an indicator of whether or not you can make your payments on time. In addition to making it easier to get that lease, having a good credit rating can help lower your monthly payments and reduce your upfront payment. 

A good credit history makes getting an equipment lease easier, but what if you’re a newer business with less history? Leasing is still an option if you are a new business — you’ll just have to start with leasing lower cost equipment first to build up that credit. If you are thoughtful and strategic in acquiring your early assets, you’ll be in a good position to grow down the road and show you’re a good credit risk. Having a strong business plan, no matter how long you’ve been in business, is a big bonus to achieving a lease. 

A lack of information is the most common reason a lease application will be declined. It’s important on your application to provide as much detail as possible, specifically answering these 5 W’s:

1. What does your business do? (be as specific as possible)
2. Who do you do it for/who are your customers?
3. Where do you do business?
4. When do customers need your product or service?
5. Why do you need the equipment?

Working on improving your credit score, providing as much information as possible, and starting small with the equipment you’re leasing will help you have better luck with getting a lease in the long run.

Leasing companies like Arbutus Capital may consider other factors to determine your risk level, such as your business’s revenue and cash flow, in addition to your credit score. We believe that even if you find yourself with imperfect credit, our empathetic and relationship-focused approach can still work with you to find flexible and creative solutions for your business. And we want to see new businesses thrive, even without a long credit history.

Ultimately, having a good credit score plays a crucial role in determining your ability to lease equipment. By taking steps to improve your credit score, and working with companies like Arbutus Capital who can help you explore different financing options, you can secure the supplies you need to help your business succeed. We’re here to help guide you every step of the way and get you the equipment you need — contact us today to get started.