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Credit, loans and capital
A Q&A with Jim Phelps, the president and owner of Capital Equipment Leasing Inc.
Q: What are some of the worst ways to go about getting an SBA loan?
A: A lot of people think they increase their chances of success by submitting multiple applications at the same time. This is untrue! Putting out applications to two to three SBA lenders will only hurt your chances. Each inquiry will show up on your credit bureau, and lower your credit score. Right now a good credit score is the most important thing in getting a loan or equipment lease.
Another pitfall borrowers fall into is that prior to their application for an SBA loan being approved, they borrow money from their friends or family to tide them over. They all think it will be a short-term loan. In reality, the process takes a lot longer, up to eight weeks. It can put a lot of pressure on the small business owner when their friends and family become impatient and demand repayment. It seems counter-intuitive, but they should secure their SBA loan first, before seeking a secondary source of funds.
Q: What is considered a good credit score?
A: A good credit score is 700 or higher. For equipment leasing, we can go down as low as 630, but we prefer them to be closer to 700, the closer the better. The higher your credit score and the longer your time in business, the lower you lease or loan payment will be. We regularly do leases for up to $100,000 application only, but that’s for clients who are well established with a good credit score.
Q: What are some of the factors that will hurt your score?
A: There are some key things to avoid, including:
- High-revolving debt
- Maxed out credit cards
- Open tax liens
- Unpaid student loans
- Unpaid child support
- Unpaid mortgage payments
We are seeing a lot of people who have refinanced their homes under the Home Affordable Refinance Program (HARP) who were advised by their mortgage company to let their mortgage go into default. Don’t listen to them. A default on your mortgage hurts your credit score and the negative impact can lasts for two years or longer.
Credit is predicated on making your payments on time. Since credit has tightened, credit reporting agencies have changed their models. If there’s a default, the penalty is more severe than it was in the past. Keep your payments current!
Q: What about those online programs you see where you can check your credit score for free?
A: Those are a trap. Some are only free for the first month, and then you pay monthly. I advise against it. You entitled to one free report annually.
Q: What is the difference between leasing and applying for a loan?
A: See chart on page XX
Q: From the lending side of things, are you seeing a lot of carwash owners borrowing money?
A: Yes. A lot of our clients are applying for money to automate their carwashes to reduce labor. For example, we’re doing a lot of leases for self-serve vacuums, streamlined accounting and tracking systems and automatic payment systems.
In terms of the economy shifting, I agree with the economic experts. We are seeing a slow, but sure recovery and 2013 will be better than 2012, providing the political situation stays stable.
Jim Phelps is president and owner of Capital Equipment Leasing Inc., in Beaverton, OR. He has more than 25 years experience in the equipment leasing industry. Phelps began his leasing career in the carwash industry. He can be reached at email@example.com or at 800-269-7810, www.leasingdollars.com.