Equipment Leasing 101 for Start-Ups, New Businesses
First congratulations on starting a new business and becoming an entrepreneur!
We understand the uphill battle that you are about or have undertaken. In 1969 when Harris Leasing went to purchase their own office furniture and equipment and requested a 30 day credit extension to help them establish a credit record we were told that no matter that our personal credit was perfect and the startup balance sheet was substantial, we would have to pay cash! So our foundation began with the idea that if a leasing company gives a start to a new company, and the company owners have a business plan in place and some tenacity, and are willing to put part of their startup capital in the form of advanced payments and personal credit guarantees. They will probably be successful and as they grow and become established, most people remember and appreciate who gave them a start and will continue to use that company when every other lender is lining up at their door. After 50+ years in the leasing industry, Harris Leasing Company can certainly attest to that fact, 60% of our business is from repeat customers.
Why would you lease or finance your equipment or furniture?
Your Startup or seed money usually comes from saving, family, credit cards and bank lines of credit, probably a combination of all. One thing is certain, it is a set amount of funds for witch you have to open and operate your new business until it can stand on its own, and this is easier said than done.
Leveraging your startup capital:
Your startup or seed money needs to be spent wisely, the equipment and furniture that is needed to run your business does not make you money but the use of it does! So hold on to your precious gold for where it is really going to work, you know, those little things like payroll, insurance, inventory. Oh and let’s not forget about Uncle Sam, he would just love to hear you say that you going to leverage your tax’s and pay him latter.
Many companies buy their essential equipment and lease their buildings; it should be the other way around. Buildings generally appreciate, and equipment and furniture do not.
J. Paul Getty, the world's first billionaire, coined the phrase "Buy that which appreciates, lease that which depreciates."
What you can expect in the equipment lease and finance process
So, let’s talk about what is required to master the application process for your startup or growing business by following these simple steps to make it a smooth and quick process. Startup and new businesses have their own special requirements and "startup restaurant” requirements for example, are the most stringent and least flexible.
The Lease Application:
Clarity; put your best foot forward here, It makes underwriters absolutely joyfully when they can read and process your application and financial questionnaire without having to interpret what you have written. If you do fill in your application by hand, please do so in print and not cursive, I can’t even read my own writing. Also you should sign and date your application in blue ink. Why you ask? From a legal document standpoint, it shows your John Handcock as an original. Here is a link to a very nice, young attorney that explains it well. https://www.youtube.com/channel/UCSrc7onpli-NGP7ygqpWyGg
Harris Leasing’s application is a fillable PDF that you can type in your information and print, sign and fax or email.
Credit Based Criteria for financing:
Startup and new business leasing in particular, is a "credit-based" decision (as opposed to asset based).
The, business plan "the idea”, projections and the value of the equipment are all considerations in an approval, but none will outweigh the importance of the principal's credit. As the new business doesn't have any "credit," the only credit left to consider is that of the owners.
Personal credit of the guarantors:
The decision for any lender to extend credit to startups and new businesses will be greatly dependent on the financial strength and the ability to manage credit of each of the principal owners with 15% or more ownership of the company seeking lease financing.
Number of Guarantors - You improve the chances of obtaining an approval by increasing the number of guarantors on the lease or finance agreement. Additional guarantees can sometimes help when a deal is weak in some areas; this will not always overcome overall poor personal credit, but could make the difference. If a transaction is a sole-proprietorship, partnership or closely held corporation and the spouse is actively involved in the business (e.g.; signs checks, handles the bookkeeping, sales, etc.) obtain their guarantee as well.
Personal Credit Bureau that we can use for consideration:
- Minimum FICO score is 600 (650 is better, 700+ is where you "want" to be)
(>700 is MANDATORY for startup restaurants/food service)
- No slow pays during the previous 12 months (or VERY GOOD explanations)
- No unpaid charge offs (or VERY GOOD explanations)
- No unpaid collection accounts (or VERY GOOD explanations)
- Depth of credit, at least 7 "trade lines" and at least 3 years old
Availability of credit is important:
- If you have maxed out your credit cards and/or have lots of installment debt this is a significant negative. If you have ever bought a home, the mortgage lender or broker has sad to you, don’t buy anything on credit until you have closed on your loan, it can affect your ratios, the same apples here.
In contrast, having too much availability for credit can be a red flag as well, a good place to be is somewhere down the middle it shows an ability to manage credit.
- Inquiries - There is no maximum but the lower the number of inquiries the better.
- Prior Bankruptcies – Owners with previous personal bankruptcies will be considered, you should have reestablished satisfactory credit since the bankruptcy.
Equipment, Industry and State Guidelines:
A wide variety of business types and new and used equipment are acceptable and state guidelines vary widely from state to state.
Harris Leasing offers an application only product for new business for strong scoring applicants with time in business from zero (0) to two (2) years
What you will need to get started with your equipment lease or equipment finance agrement.
- You have filled your D/B/A in your home county, EIN and tax ID if required.
- A minimum equipment or furniture purchases of $2,500 and a maximum of $50.000 in most cases, (this can be from multiple vendors.)
- 12 to 60 month terms
- Beacon/ FICO scores above 600 preferred
- Low to med 4 bank average are recommended
- A clear and completed application, click here for our fill & fax application
- Startup questionnaire and personal financial statement are recommended
- New Restaurants will be considered with completed PFS and a business plan
or completed startup restaurant questionnaire for a maximum term of 48
At the Harris Leasing Company, we take the time to get to know you and your business needs regardless of your credit history or if you are just starting out. Our specialists will work with you to develop a custom finance program. Let's get started today! Simply call 713-783-7820 to speak with a representative OR start the application process here!