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Tata Capital > Blog > Does Credit Score really matter when it comes to leasing equipment?

Equipment Lease

Does Credit Score really matter when it comes to leasing equipment?

Does Credit Score really matter when it comes to leasing equipment?

Equipment is a critical component of every business. Whether it is a restaurant business or a construction company that requires heavy machinery or an office that needs computers, copiers, and fax machines to execute day to day operations, equipment is essential. Business equipment can be acquired by purchasing new equipment outright, buying it through equipment financing, or leasing it from leasing companies.

Buying equipment for a business is a huge commitment, especially if a company is just starting up. In contrast, leasing equipment allows entrepreneurs to lease short-term assets or long-term machinery without investing enormous capital upfront.

Leasing is an attractive option for many reasons. First, obtaining a loan to purchase equipment may not be feasible if the borrower can’t pay the down payment. Second, leasing is a cost-effective means to finance short-term equipment where the equipment can become obsolete over some time. So leasing is also a good option for businesses that require frequent upgrades with the latest technological advancements. Thirdly, leasing offers businesses the flexibility to use the equipment and earn returns without investing large sums of money upfront. Like any borrowing, the borrower’s credit score plays a vital role in accessing financing at competitive terms in leasing.

Good credit score and leasing

When a financing company considers an equipment lease application, they examine it for indicators to show that the business is creditworthy. A primary factor lenders check is the credit score that reflects the borrower’s credit history and repayment trend. The better the credit score, the less risk the borrower poses to the equipment leasing company. A high score reflects that the business has made timely repayments and honoured past loan service obligations meticulously.

If the borrower has a good credit score, the approval process for the equipment lease is simplified with a faster turnaround time. A good credit score can help borrowers negotiate better financing terms as the risk of non-payment is reduced. Tata Capital offers seamless equipment finance and leasing solutions to help businesses improve ROI and steadily invest in their growth.

However, a credit score is not the only parameter evaluated by underwriters during credit assessment.

Additional Read: Operating Lease vs. Financial Lease: Which one suits your business?

Parameters besides the credit score

If other business performance metrics are strong, a business can still lease equipment with an average credit score. Leasing companies also consider other factors like turnover growth, profitability, cash flow position, overall net worth, market position, industry trends and more while evaluating a leasing application. While a good credit score helps, lenders look at a holistic risk assessment and the borrower’s integrity before sanctioning lease applications.

Additional Read: What end of lease options should be explored before leasing equipment?

Equipment leasing can build a credit score.

Like interest on loans and EMIs, timely payment of lease interest and rentals can help businesses build credit scores. If companies make lease payments on time, the credit score will reflect that positive credit behaviour. Interest payment history and timely servicing of loans are essential factors considered in credit score calculations. On-time payments will go a long way to help businesses improve their credit score.

Equipment leasing is a cost-effective means of borrowing with an option of buying the equipment post the lease tenure. Leasing is an apt solution for industries like healthcare, manufacturing, agriculture, restaurants, and construction, relying heavily on costly equipment and the latest technology.

While maintaining a good credit score helps access competitive leasing solutions, it is not the only metric assessed by lenders. Strong business fundamentals, good reputation of the senior management, higher market share amidst competition, strong supply chain partners and relationships are the many other variables that lenders consider while approving lease applications.

At Tata Capital, we do comprehensive due diligence to empower creditworthy businesses to access the latest financial offerings at competitive rates. Reach out to our leasing teams to know more about our leasing solutions and your eligibility.

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FAQs

What is the minimum CIBIL score required to lease equipment in India?

There is no fixed minimum CIBIL score for equipment leasing. Different lenders follow different rules. Many also consider business income, cash flow, and repayment capacity before making a decision.

Can I lease equipment without a credit history?

Yes, it may be possible. Some lenders are willing to consider new businesses or first-time borrowers. They may place more importance on business performance, income records, or additional security instead of past credit history.

Does applying for an equipment lease affect my CIBIL score?

Many people ask, “Do leases show up on credit report?” A lease application may involve a credit inquiry, which can appear in your credit report. One or two inquiries usually have a limited impact, but making several applications within a short time may affect the score.

What is the difference between equipment leasing and an equipment loan?

In equipment leasing, the leasing company owns the asset and the business pays regular rentals to use it. In an equipment loan, the borrower purchases the equipment and repays the borrowed amount through EMIs.

Can a business with a low credit score get equipment on lease from Tata Capital?

A low credit score may not always lead to rejection. The lender may also review the business income, financial position, and repayment ability. The final approval depends on the lender's internal assessment and policies. At Tata Capital, we do comprehensive due diligence to empower creditworthy businesses to access the best of our services.

How long does it take to get equipment lease approval in India?

The approval time can vary from one lender to another. If the documents and financial details are in order, the process may move quickly. More complex cases may require additional verification.

Does paying equipment lease rentals on time improve my credit score?

Regular and timely payments can help build a positive repayment record. Over time, responsible financial behavior may support a healthier credit profile and improve future borrowing opportunities.

What documents are required to apply for equipment leasing in India?

The document list may vary across lenders. Commonly required documents include identity proof, address proof, PAN card, business or income proof, bank statements, and documents related to the equipment being leased.

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