Can a Startup Get Equipment Financing?

The Reason

Why Lenders Wait for Two Years

A lender is paid back out of a business’s future cash flow, and the best evidence of future cash flow is past cash flow. A business that has operated for two years has paid rent, payroll and suppliers through two cycles, has a trade credit history that reporting agencies can see, and has shown whether its owners pay on time when money is tight. A business that opened last month has none of that, however good the plan.

The record behind the caution is long. Lenders keep their own loss data going back decades, and that data says the same thing the public statistics say: a large share of new businesses do not survive their first years. The lender that finances a machine for a startup is betting on an outcome it has no way to assess, at a rate that was set for borrowers it can assess. Equipment financing companies price in a narrow band, and a narrow band cannot absorb startup default rates. So the line sits at about two years, and the application asks for time in business before it asks for anything else.

The Exceptions

What Startup Financing Looks Like When It Exists

A small number of lenders do finance startups, and many of the companies advertising startup equipment loans resell those lenders’ programs. When the business has no record, the loan is really made to the owner. Expect some or all of the following:

Near-perfect personal credit. Not good credit; spotless credit, with a long history.
A personal guarantee from every principal, and often outside collateral such as cash or real estate, because the equipment of a failed startup is worth little to the lender.
A larger down payment than an established business would be asked for.
A rate set for the risk, because the lender prices the defaults it expects across its startup book into every agreement.
Industry experience. Some programs will consider a brand-new company whose owner has years in the same trade; the experience stands in for the track record.

The catch is obvious: an owner who meets those conditions often has other ways to fund the purchase, and one who does not cannot qualify. That is the startup financing dilemma in one sentence.

Government Programs

What About the SBA?

The U.S. Small Business Administration generally does not lend money itself. It guarantees part of a loan that a bank or other approved lender makes, which lowers the lender’s risk and makes a borderline application easier to approve. The guarantee helps most when the lender is already close to yes: it turns a maybe into an approval. It does not replace the lender’s own credit decision, and a lender that would not consider the application on its merits is unlikely to make it because of the guarantee. For a startup with a strong owner and a clear plan, an SBA-guaranteed loan through a bank is still one of the few realistic routes to equipment funding, and the SBA’s own resources are the place to start.

In the Meantime

What a New Business Can Do Now

Buy used, or buy smaller, for cash. The first machine does not have to be the one you keep. Equipment that pays for itself quickly builds the revenue record the next lender will want to see.
Ask the seller. Some manufacturers and dealers run in-house or captive financing for their own equipment and will take a newer business on their own terms, because the equipment is theirs to remarket.
Keep the owner’s credit clean. For a closely held company the owner’s personal credit is part of every application for years. Pay everything on time and keep revolving balances low.
Build trade credit in the company’s name. Accounts with suppliers that report payment history create the business credit file lenders check.
Keep the books. Clean bank statements and tax returns from year one make the two-year application fast.
Mark the date. At two years under current ownership, with bills paid on time, equipment financing on the business’s own credit becomes realistic, usually without financial statements or tax returns for smaller amounts.

At Crest Capital

Where Crest Capital Draws the Line

Crest Capital works with established businesses: 2 or more years under current ownership and a record of paying bills on time, with a personal credit score of 650 or better as the benchmark. Startup financing is one of the things we do not do, and we say so rather than take an application we cannot approve. Once the business reaches two years, one simple application covers $10,000 to $500,000, no financial statements or tax returns are needed up to $250,000, and checking eligibility involves no personal-credit inquiry. The Do You Qualify? page has the plain-English version of what we look for.

Common Questions About Startup Equipment Financing

Most commercial lenders look for about two years of operating history under current ownership before financing equipment on the business’s own credit. Crest Capital’s line is 2 or more years under current ownership.

Because a loan is repaid from future cash flow and a new business has no cash-flow history to judge. Lenders’ own loss records show that a large share of new businesses fail in their first years, and equipment lenders price in a band too narrow to absorb that default rate.

The SBA generally guarantees loans made by banks and other approved lenders rather than lending directly. The guarantee lowers the lender’s risk and can turn a borderline application into an approval, but the lender still makes its own credit decision.

No. Crest Capital works with established businesses that have 2 or more years under current ownership and pay their bills on time. At two years, one simple application covers $10,000 to $500,000.

Lenders generally count time under current ownership, so a long-established company with a new owner is treated as a newer business for credit purposes until the new ownership has its own record. Industry experience can help in that case.

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