Key Takeaways
- Understand the difference between capital leases ($1 buyout) and operating leases (FMV).
- Equipment financing can offer tax benefits under Section 179.
- Approvals are faster than bank loans because the equipment serves as collateral.
Full Guide
What is Equipment Financing?
Equipment financing is a type of small business loan designed specifically to help you purchase business assets. Instead of paying cash upfront, you spread the cost over time while putting the equipment to work immediately.
Unlike general-purpose small business loans, an equipment loan is tied directly to a specific asset purchase. The equipment itself secures the loan, which creates advantages for both you and the lender.
Quick Definition: Equipment financing lets you acquire the machinery, vehicles, or technology your business needs without draining your bank account. The equipment serves as collateral, making approval easier than unsecured loans.
How Does Business Equipment Financing Work?
The process is straightforward and typically takes just 2-5 business days from application to funding.
Step 1: Choose Your Equipment
Identify exactly what you need and get a quote from the vendor. Be specific - lenders want to know the exact make, model, and cost.
Step 2: Apply for Financing
Submit your application with business and financial information. Most applications take 10-15 minutes to complete online.
Step 3: Get Approved
The lender evaluates your creditworthiness and the equipment value. Same-day approvals are common for qualified borrowers.
Step 4: Receive Funds
Money goes directly to the equipment vendor. You don't handle the cash - the lender pays the supplier directly.
Step 5: Make Payments
Pay back the loan in fixed monthly installments. Set up auto-pay and never worry about missing a payment.
Important: The equipment serves as collateral throughout the loan term. If you default, the lender can repossess the asset to recover their investment. This is why equipment loans typically have lower rates than unsecured financing.
Why Choose an Equipment Loan Over Paying Cash?
Commercial equipment financing offers several strategic advantages that smart business owners leverage.
Top 5 Benefits of Equipment Financing
- Preserve Working Capital: Keep cash available for daily operations, emergencies, and growth opportunities. Your cash reserve is your safety net.
- Easier Approval: Since the loan is secured by the asset, lenders place less emphasis on credit scores compared to unsecured business loans.
- Lower Interest Rates: Collateralized equipment loans typically carry better rates than unsecured financing - often 2-5% lower APR.
- 100% Financing Available: Many lenders finance the full purchase price, including soft costs like shipping, installation, and training.
- Tax Benefits: Section 179 deductions may allow you to write off the full purchase price in the year of acquisition - potentially saving thousands.
Who Qualifies for Business Equipment Loans?
Almost any industry that relies on physical assets can benefit from commercial equipment loans. Here are the most common sectors we help finance:
| Industry | Common Equipment Financed | Typical Loan Range |
|---|---|---|
| Construction | Excavators, cranes, loaders, trucks | $50K - $2M+ |
| Healthcare | MRI machines, dental chairs, diagnostic equipment | $25K - $1M+ |
| Manufacturing | CNC machines, assembly lines, packaging equipment | $100K - $5M+ |
| Restaurants | Commercial ovens, refrigeration, POS systems | $10K - $250K |
| Technology | Servers, workstations, networking infrastructure | $25K - $500K |
| Transportation | Trucks, trailers, fleet vehicles | $30K - $1M+ |
Whether you need a single piece of equipment or an entire fleet, small business loans for equipment can scale to match your needs.
Key Equipment Financing Terms to Know
Understanding these terms helps you compare equipment loan offers effectively and avoid confusion:
Term Length
Typically 2-7 years. Lenders usually match the term to the equipment's useful life. Heavy machinery gets longer terms than computers.
Interest Rate (APR)
Varies based on credit profile, typically 6% to 20% for qualified borrowers. Rates below 10% are considered excellent.
Down Payment
Can be 0% for strong credit profiles, or 10-20% for newer businesses or challenged credit. Larger down payments equal lower rates.
Equipment Cost Range
Most lenders finance equipment from $5,000 to $5 million or more. Minimum and maximum amounts vary by lender.
Residual Value
Some financing structures include a balloon payment at the end based on projected equipment value. Clarify this upfront.
Equipment Loans vs. Working Capital Loans
Choosing the right type of small business loan matters for your cash flow and financial health.
| Equipment Financing | Working Capital Loan | |
|---|---|---|
| Best For | Long-term assets that generate revenue | Short-term needs like payroll, inventory |
| Collateral | The equipment itself | Often unsecured or blanket lien |
| Typical Term | 2-7 years | 6 months - 2 years |
| Interest Rate | Lower (6-15%) | Higher (10-30%) |
| Approval Ease | Easier due to collateral | Harder for newer businesses |
Golden Rule: Never use short-term cash to pay for long-term assets. It kills your liquidity and creates unnecessary financial stress. Matching your financing type to your purchase type keeps your cash flow healthy and your business financially stable.
Is Equipment Financing Right for Your Business?
Business equipment financing makes sense when you can check these boxes:
You Should Consider Equipment Financing If:
- You need equipment to grow or maintain operations
- You want to preserve cash for other business needs
- The equipment will generate enough revenue to cover loan payments
- You prefer predictable monthly payments over a large upfront expense
- You want to take advantage of Section 179 tax deductions
Ready to see what you qualify for? Try our equipment financing calculator to estimate your monthly payments, or check your eligibility with our partner lenders.