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How Equipment Financing Works
Equipment financing is a loan (or lease) used specifically to purchase business equipment. The equipment itself serves as collateral — which means no personal property, no business real estate, no additional assets pledged. If you stop paying, the lender repossesses the equipment. That’s the deal.
Because the collateral is built into the purchase, equipment financing is one of the most accessible forms of secured business lending. Lenders are comfortable with lower credit scores, shorter business histories, and smaller revenue figures than they’d require for an unsecured loan — because they have a concrete asset to fall back on.
You’re not pledging your home, your accounts receivable, or a blanket lien on your business. The equipment is the collateral. This keeps your other assets free for other financing and means faster approvals with less paperwork than most secured loan types.
Equipment Loan vs. Equipment Lease: Which Structure?
You borrow the purchase price, the lender holds a lien on the equipment, and you make fixed monthly payments over 2–7 years. At loan payoff, you own the equipment outright. Best when the equipment has a long useful life, strong resale value, or you want to build equity. Tax deduction via Section 179 (up to $1.22M in 2026) or bonus depreciation available on purchase.
You pay monthly to use the equipment for a set term (2–5 years). At end of term: return it, renew the lease, or buy it out (often at FMV or a fixed option like $1). Best for equipment that becomes obsolete quickly (tech, medical devices) or when you want lower monthly payments. Full lease payment is deductible as a business expense — no depreciation calculation needed.
You sell equipment you already own to a lender, then lease it back. Unlocks capital from assets you’re already using — without disrupting operations. Common for manufacturing, trucking, and construction businesses that own heavy equipment free and clear. Good if you need cash now and are willing to pay to lease what you own.
What Equipment Qualifies?
Almost any tangible, depreciable asset used for business purposes qualifies. Lenders want equipment that holds its value — because it’s their collateral if you default.
What typically doesn’t qualify: Consumable supplies, software licenses, inventory, real property or improvements, or equipment with very short useful lives (under 1–2 years). Some lenders also won’t finance used equipment older than 5–7 years or equipment with a very thin secondary market.
Rates, Terms, and a Real Cost Example
Equipment financing rates vary based on your credit score, business age, equipment type, and loan term. Expect:
- Interest rates: 5–30% APR (best credit = 5–8%; fair credit = 12–20%; below 600 FICO = 20–30%+)
- Loan terms: 2–7 years (term typically matches equipment useful life)
- Advance rate: 80–100% of purchase price (some lenders require 10–20% down)
- Loan amounts: $5,000 to $1M+ (large amounts require stronger financials)
Example: $75,000 Delivery Truck, 60-Month Loan at 9% APR
Note: Under Section 179, if this truck is used 100% for business, you could deduct the full $75,000 purchase price in Year 1 — potentially saving $16,500–$26,250 in federal taxes at a 22–35% bracket. The after-tax cost of the equipment is materially lower than the sticker price when you factor in the deduction.
Who Qualifies for Equipment Financing?
Equipment financing is one of the most accessible secured loan products because the collateral is built in. Startups with personal credit of 650+ can often qualify even with no business revenue history, particularly for smaller amounts ($25K and under).
Equipment Financing vs. Other Capital Options
| Option | Best for | Collateral | Cost | Speed |
|---|---|---|---|---|
| Equipment Loan | Long-life assets, ownership goal | Equipment only | 5–30% APR | 1–5 days |
| Equipment Lease | Tech, fast-obsolete assets | Equipment only | 6–24% equivalent | 1–3 days |
| SBA 7(a) | Large purchases, best rates | Equipment + blanket lien | 6–11% APR | 30–90 days |
| Working Capital Loan | Smaller equipment, fast need | Often unsecured (PG) | 15–50% APR | 1–3 days |
| Business Line of Credit | Multiple small purchases | Usually unsecured | 15–35% APR | 2–7 days |
How to Apply for Equipment Financing
- Get an equipment quote. Lenders want to see a purchase agreement, invoice, or dealer quote showing the equipment’s price, make, model, and year. Have this ready before you apply.
- Check your credit. Pull your personal credit report (annualcreditreport.com). Dispute errors before applying. Equipment financing lenders typically pull both personal and business credit.
- Gather financials. Have your last 3–6 months of business bank statements and last 2 years of tax returns ready. Larger loans ($100K+) may require P&L statements.
- Apply with 2–3 lenders. Rate shop within a 14-day window — multiple hard inquiries in the same period count as one on most scoring models. Compare terms, not just rate.
- Review the agreement carefully. Watch for: prepayment penalties, balloon payments at end of term, maintenance clauses on leases, and blanket lien language that encumbers other assets.
Need equipment financing fast?
Tell us what you’re buying and we’ll match you with lenders who specialize in your equipment type and credit profile — no blanket collateral required.
Find Equipment Financing →Frequently Asked Questions
Can I get equipment financing with bad credit?
Yes, though your options narrow as your credit score drops. Most equipment lenders set a floor around 550 FICO. Below 600, you’ll typically face higher rates (20–30%+ APR), lower advance rates (requiring more down payment), and shorter terms. Some specialty lenders focus on credit-challenged borrowers and will finance equipment for businesses with scores in the 500s, particularly when the equipment has strong collateral value (vehicles, heavy machinery). If your credit is below 550, consider improving your score first or exploring working capital loans paired with a cash purchase.
How long does equipment financing take?
Most equipment loans close in 1–5 business days for amounts under $150,000. Above $150K, expect 1–2 weeks as lenders may require appraisals, additional financials, or equipment inspections. SBA-backed equipment loans take the longest — 30–90 days — but offer the lowest rates. If speed is critical, online equipment lenders can sometimes fund within 24 hours for straightforward loans under $75K.
Can a startup get equipment financing?
Yes — equipment financing is one of the most startup-friendly loan products because the equipment itself secures the loan. Startups typically need: personal credit of 650+ (some lenders 600+), a down payment of 10–20%, and the ability to document that the equipment will generate revenue. Businesses under 2 years old may be limited to smaller loan amounts ($25K–$75K) and will pay slightly higher rates. For startups with strong personal credit, this is often more accessible than a business line of credit or working capital loan.
Is equipment financing tax-deductible?
Both equipment loans and leases offer tax advantages, but differently. With an equipment loan, you can deduct the interest portion of payments as a business expense, plus depreciate the asset over its useful life — or use Section 179 to deduct up to $1.22M in the year of purchase (2026 limit, subject to annual adjustment). With a lease, your full monthly payment is typically deductible as an operating expense. Consult your CPA to determine which structure offers better tax treatment for your situation — it depends on your current profitability and tax bracket.
What’s the difference between equipment financing and equipment leasing?
Financing (a loan) means you’re buying the equipment with borrowed money — you own it at the end, and it’s on your balance sheet as an asset. Leasing means you’re paying for the right to use the equipment — you don’t own it (unless you exercise a buyout option), and it’s typically treated as an operating expense rather than a capital asset. Loans are better for equipment you’ll keep for many years. Leases are better for equipment that becomes obsolete quickly or when you want lower monthly payments without the ownership responsibility.
What documents do I need to apply for equipment financing?
Standard requirements: (1) Equipment quote or invoice from the seller showing price, make, model, year, and condition; (2) last 3–6 months of business bank statements; (3) last 2 years of business and personal tax returns; (4) completed loan application with ownership details; (5) government ID for all owners with 20%+ ownership. Larger loans ($150K+) may also require financial statements (P&L, balance sheet), equipment appraisals, or additional documentation about the equipment’s condition and expected useful life.