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Levels Of Credit

“Here Are The Different Levels Of Credit In The Equipment Leasing Market Place?”

One of the great aspects of the equipment leasing and financing market is the breadth of credit profiles that can potentially get financed from different leasing companies.

When I refer to credit, its more of a generic term here for credit and financial strength of the business all rolled into one bit of terminology.

Each level of credit is going to influence the cost of lease financing you can secure as well as the related terms for repayment.

Starting at the lowest risk financing and working our way down, there are basically two types of “A” credit categories.

The difference between the is going to come from the amount of established commercial credit and the financial scale and net worth of an existing business.

Lets call the higher level of credit “A+” and the lower level of high end credit “A”.

Once again, the only real difference between these two is larger, more well established company, versus smaller, less established company.

The difference from a leasing financing perspective is mostly going to be rate related where the “A+” credit can access slightly lower cost debt due to the overall strength of their credit profile and larger size transactions.

This distinction is important in that even if you have been in business for ten years as a small business and have near perfect credit, you still are not likely going to be able to secure the absolute best rates of financing that will be provided to the “A+” class of businesses.

For the most part, the vast majority of small and medium sized businesses fall in the “A” credit category across all industries and geographies.

The next classification of credit is “B” credit which typically relates to businesses with slightly bruised credit or some type of strain in their financial profile.

These companies are operating and have the cash flow to service debt, put are not in as strong a financial position as compared to an “A” business credit profile, so the risk of loss to a loan or leasing company is going to be higher which will result in higher rates and terms.

“B” credit lenders are a very important part of the market as there are many companies from time to time that cannot qualify for “A” credit and without an alternative would have a very difficult time gaining access to the capital they require.

The fourth and last class of leasing company is “C” credit.

For these business there is a certain amount of credit, financial, and cash flow distress in the business and the possibility of default and even business failure is much higher than the other ratings.

Leasing companies that focus on these types of deals typically are in the asset liquidation business as well, or are closely aligned to some form of liquidation entity due to the fact that if this type of deal does not work out, they need to know exactly how to liquidate the asset for the most money possible in order to recoup their capital investment.

“C” credit financing rates typically will fall into the 18% to 24% range and can require more equity in the deals by the owners to provide more security margin for the lenders.

The key to getting the best rates and terms is to understand what level of credit your business currently has, and then to work with the appropriate leasing company to get equipment financing that can meet your requirements.

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