Using term, down payment and equipment selection to move marginal deals into fundable range
Executive Summary: Many deals that get declined could have been approved with different structure. Brokers who understand how structure elements affect credit decisions can often find fundable paths for transactions that straightforward submissions would miss. This article examines the structure levers available and when to use them.
A broker submitted a $120,000 equipment deal that came back declined. The credit was marginal — thin business history, some personal credit blemishes and financial performance that was adequate but not strong. She resubmitted with a 20% down payment and a 48-month term instead of 60 months. The deal approved.
Nothing changed about the client or the equipment. The structure adjustment addressed the funder’s specific concerns: the down payment reduced exposure and demonstrated client commitment, while the shorter term reduced duration risk. The same deal, structured differently, produced a different outcome.
Understanding these dynamics helps brokers convert marginal situations into funded deals. Structure isn’t just about client preference — it’s a tool for managing credit risk in ways that make approvals possible.
How Funders Think About Structure
Understanding funder perspective on structure elements helps you use them effectively.
Down payments reduce funder exposure and demonstrate client commitment. A client who puts money down has skin in the game and is less likely to walk away from the transaction. From a credit perspective, down payments also improve loan-to-value ratios, which matters for recovery if things go wrong.
Term length affects risk duration and payment burden. Shorter terms mean the funder’s exposure decreases faster and total interest paid is lower. But shorter terms also mean higher monthly payments, which increases the burden on client cash flow. The trade-off between these factors varies by deal.
Equipment type and age affect collateral value and depreciation assumptions. Newer equipment from established manufacturers holds value more predictably than older equipment or unfamiliar brands. Equipment that’s essential to the client’s operations is less likely to be abandoned than equipment that’s discretionary.
Payment timing can affect approval in specific situations. Seasonal businesses might benefit from payment structures that align with their cash flow patterns. Step-up payments might make sense for businesses expecting growth. These structures add complexity but address real business circumstances.
When to Adjust Structure Proactively
Some deals warrant structure conversation before you submit rather than after a decline.
When credit is clearly marginal, structure adjustments may be necessary for any approval. Rather than submitting a standard structure and waiting for decline, discuss options with the client upfront. A deal submitted with structure already adjusted for credit reality moves faster than one that requires resubmission.
When the equipment is unusual or hard to value, structure that reduces residual risk helps. Higher down payments or shorter terms offset funder uncertainty about what the equipment will be worth if they need to recover it.
When the client’s business is young or in transition, structure that demonstrates commitment and reduces duration risk addresses obvious concerns. Funders are more willing to take chances on developing businesses when the structure limits their exposure.
The conversation with clients is often easier before submission than after decline. ‘Given your situation, we’ll have the best chance of approval with some money down and a shorter term’ positions structure as strategy. ‘They declined, but they might approve if you put money down’ positions it as desperation.
Down Payment Strategies
Down payments are the most straightforward structure tool but using them effectively requires thought.
Determine how much is needed to change the credit decision. Some funders have specific advance rate limits that determine minimum down payments. Others evaluate deals holistically where down payment is one factor among many. Understanding what a specific funder needs helps you request the right amount from clients.
Recognize that down payment ability varies by client. Some clients have cash available. Others are seeking financing precisely because they don’t have cash. A structure that requires 20% down isn’t viable for a client who has 5% available. Understanding client capacity shapes what structures you can propose.
Consider alternatives to cash down payments. Trade-ins, if the client has existing equipment, can serve similar purposes. Some funders accept documentary stamps, first-payment-in-advance or other arrangements that achieve similar economic effect. Knowing what a specific funder will accept expands your options.
Be realistic about how down payments affect the overall deal. A client who puts down 25% has less financing but also less debt service. Make sure the remaining amount still makes sense as a transaction — very small financed amounts may not be worth pursuing given the effort involved.
Term Adjustments
Term length affects both approval probability and deal economics.
Shorter terms reduce funder risk in several ways. Exposure decreases faster. Less time exists for client circumstances to deteriorate. Residual risk is lower because less depreciation occurs. For marginal credits, shorter terms often make approval possible where longer terms wouldn’t.
The payment impact of shorter terms must be manageable. A 48-month term instead of 60 months increases payments roughly 20% on equivalent amounts. If the client’s cash flow can’t support the higher payment, the structure doesn’t work regardless of its credit benefits.
Sometimes longer terms help specific situations. A client with tight cash flow might need the lower payment a longer term provides. If the credit is otherwise acceptable and the equipment supports the longer term, this structure serves the client’s needs. The key is matching structure to specific circumstances rather than applying rules mechanically.
Equipment useful life constrains term regardless of credit considerations. Funders won’t approve terms that extend beyond reasonable equipment life. A five-year term on equipment with three years of remaining useful life doesn’t work regardless of how good the credit is.
Equipment Considerations
Sometimes the equipment itself is the structure variable.
Equipment selection affects approval when clients have options. If a client is considering both a newer model and an older, cheaper option, the newer equipment may finance more easily despite the higher amount. Better collateral can offset other credit concerns.
Equipment age limits matter to most funders. A ten-year-old machine may be harder to finance than a three-year-old one even if it’s mechanically sound. When clients are considering used equipment, understanding age limits for your funders helps guide their selection.
Brand and manufacturer reputation affects financing availability. Equipment from established manufacturers with strong dealer networks finances more readily than equipment from unknown or defunct manufacturers. When clients are choosing between options, this factor deserves consideration.
Essential equipment versus nice-to-have equipment affects funder comfort. Equipment central to the client’s operations — the truck for a trucking company, the oven for a bakery — is less likely to be abandoned. Supplementary equipment presents higher walk-away risk. Positioning the equipment’s role in the client’s business helps funders assess this.
Communicating Structure to Clients
How you discuss structure options with clients affects their reception.
Frame structure as optimization, not desperation. ‘Here’s how we can structure this to give us the best shot at approval’ sounds different than ‘They probably won’t approve unless you put more down.’ The first positions you as strategic; the second as reactive.
Explain the reasoning behind structure recommendations. Clients accept structure constraints more readily when they understand why. ‘A shorter term reduces the funder’s risk on a newer business like yours’ makes sense to clients even if they’d prefer a longer term.
Present options when possible, rather than ultimatums. ‘We could try it at sixty months with no money down, but approval is uncertain. Or we could do forty-eight months with ten percent down and have a much better chance. What’s your preference?’, lets clients participate in the decision.
Be honest about trade-offs. Structure adjustments that help approval often have costs — higher payments, more cash needed upfront and less total financing. Clients should understand what they’re trading for improved approval probability.
Structure as Ongoing Skill
Effective deal structuring improves with experience and attention.
Learn from every approval and decline. When deals approve with certain structures, note what worked. When deals decline, understand whether different structure might have changed the outcome. This pattern recognition improves your structuring instincts over time.
Understand each funder’s structure preferences. Different funders weight structure elements differently. Some care intensely about down payment; others focus on term. Knowing what matters to specific funders helps you structure deals they’ll approve.
Stay current on market conditions. During tight credit periods, structure matters more. When funders are aggressive, they may accept structures they’d decline in cautious periods. Structure strategy should adapt to market conditions.
Many of the deals sitting in your ‘couldn’t get it done’ memory might have funded with different structure. The skill of identifying structure solutions for challenging deals converts marginal situations into closed transactions. It’s worth developing deliberately rather than learning only through trial and error.
