What Is Subprime Credit?

The last of those mentioned terms simply means that these borrowers pose higher credit risks than what the majority of bank-rate lenders are ready to accept when they originate business loans. Subprime equipment financing is extended to a business which has been facing—or has faced—issues in maintaining a repayment schedule to past lenders.

There is no hard-and-fast criterion which determines if equipment financing is subprime. The general rule of thumb says these are the ones that go out to borrowers with under 640 in FICO score, those that lack collateral, those that have only been in business a short time, and those that have missed payments in the past.

There can also be other reasons a borrower rates a higher credit risk. If, for instance, business happens to be over-leveraged and is facing cash-flow issues, it would make a bank-rate lender wary of extending funds to it towards any purpose. The main reason here is that the borrowing business might not be able to fully or even partially service the debt.

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