Credit Ratings and Application
Documents (no-doc to full-docs) Requirements

Credit ratings (A, B, C, D) give a quick letter grade to an individual’s credit history. This allows financial institutions to determine how likely an individual will pay money back if given a loan, as well as employers to verify how responsible their employees are.

FICO designates letter grades to credit score numbers in the following way: "A" rating is 720+ (excellent), "B" rating is 650+ (good), "C" rating is 575+ (average), and below 575 is a "D" rating (poor). Different lenders may vary from these standard four credit ratings (i.e., A+, C-).

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To evaluate the credit worthiness of small and medium businesses lenders typically use Paynet score, Experian Business Information System (Business Intelli-score and Financial Stability score), and Paydex score from Dunn & Bradstreet. For example, a Paynet score of 680 and above is typically considered an A business credit.

Business and business owner’s personal credit scores are crucial factors in business lending such as equipment financing and invoice/accounts receivable financing. Higher business/personal credit scores along with new equipment purchase usually allows the borrower access no-doc applications. On the other side, medium or lower credit scores along with existing, older, or non-popular (thin secondary market) equipment typically requires the borrower to provide full documentation.

Pricing or rate is always a reflection of risk. In equipment financing the basic information required is as follows:

No-doc pre-approval:

Full-doc Items needed for credit approval or pre-approval:

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Based on the type of equipment, as well as business/owner credit profile, additional supporting documents maybe required to help the underwriter make credit decisions.

Occasionally, business owners use real estate as collateral to apply loans. Since the business already owns the properties (potentially with existing mortgages) the cash proceed from borrowing is potentially used for working capital. The following is a typical list of items that must be provided for consideration:

Once above preliminary application materials are provided the underwriter may come back with additional questions and potentially more requests for supporting documents. At the end of this step, suppose everything works out to the applicant’s favor and the provided documents support a pre-approval, a loan proposal will be provided for the borrower to consider and to negotiate, if necessary.

A typical loan proposal looks like the following example:

LOAN PROPOSAL FOR ABC Company (borrower) from XYZ Lender Inc.

$XXX, or up to 80% of the equipment’s appraised Net Forced Liquidation Value, based on an appraisal by the XYZ Lender Inc.

At the bottom of the loan proposal is the lender’s signature and space for borrower to sign. An interview between the borrower and the lender will be arranged if the loan proposal is accepted.

Questions asked by the underwriter at the time of interview:




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