A business equipment loan is a secured term loan where the purchased equipment itself serves as collateral — you finance the equipment, own it outright, depreciate it under IRS Section 179 or 168(k) bonus depreciation, and the lender holds a UCC-1 lien on the asset until the loan is repaid; for purchases over $1 million that include real estate, SBA 504 is the benchmark program.
Equipment financing is a secured loan in which the financed equipment itself serves as the collateral — no additional business real estate or personal real estate pledge is required in most cases. The mechanics: you identify the equipment, the lender advances 80%–100% of the purchase price directly to the vendor, and the lender files a UCC-1 financing statement against the specific equipment (identified by make, model, and serial number) under UCC Article 9. You take title to the equipment immediately — unlike leasing, you own the asset from day one. The lender holds a first-lien security interest that is released when the loan is repaid. Because the collateral is the equipment itself and the lender controls the purchase, equipment loans typically require minimal additional documentation compared to working capital loans: the equipment invoice or quote, 3–6 months of business bank statements, a one-page application, and proof of business ownership. Terms range from 24 to 84 months depending on equipment useful life, with rates from 6%–20% APR depending on borrower credit profile and equipment type.
The SBA 7(a) loan program is the most flexible government-backed option for equipment financing — it covers virtually any equipment purchase up to $5 million with terms up to 10 years for equipment and machinery. Rates are capped at prime + 2.75% (loans under $50,000), prime + 2.25% ($50,000–$250,000), and prime + 2% (above $250,000). The SBA 7(a) equipment loan requires the borrower to meet SBA size standards (typically under 500 employees or $7.5M–$38.5M annual revenue depending on NAICS code), operate a for-profit business in the U.S., demonstrate repayment ability, and have reasonable owner equity. The SBA guaranty (up to 85% for loans under $150,000, 75% for loans above) reduces lender risk, enabling approval for businesses that might not qualify for conventional equipment financing. SBA 7(a) equipment loans are the right benchmark when you need more than $500,000, want the longest possible term, or need the lowest rate.
The SBA 504 loan program is designed for major fixed-asset purchases — specifically, heavy equipment purchases above $1 million and owner-occupied commercial real estate, often combined. The 504 structure is a two-lender model: a conventional lender (bank or credit union) funds 50% of the project cost, a Certified Development Company (CDC) funds 40% with an SBA-guaranteed debenture, and the borrower contributes 10% equity. CDC-funded portions carry fixed rates locked at U.S. Treasury debenture rates + a spread — historically among the lowest available fixed rates for small businesses. Terms: 10, 20, or 25 years for real estate; 10 or 20 years for equipment. Maximum loan amounts: $5.5 million for standard projects ($5.5M CDC portion), $5.5 million for manufacturers, $5.5 million for energy projects. SBA 504 is the optimal structure when the equipment purchase exceeds $1 million, the business wants a fixed rate, and the project may include real estate — common in manufacturing, food processing, and heavy construction.
Outside the SBA programs, conventional equipment loans are offered by banks, credit unions, equipment finance companies, and captive finance arms of equipment manufacturers. Conventional equipment financing typically advances 80%–100% of the equipment's fair market or purchase value, with terms matched to the equipment's useful life (2–7 years for technology and vehicles, 5–10 years for heavy machinery). Rates range from 6% APR for well-qualified borrowers with strong credit and established businesses, up to 20%+ APR for startups or borrowers with credit challenges. Unlike SBA loans, conventional equipment financing can close in 24–72 hours for transactions under $500,000, making it the preferred path when speed matters. Businesses with $10,000+ monthly revenue, 1+ year in business, and FICO 640+ typically qualify for conventional equipment loans without real estate collateral — the equipment self-secures.
Equipment leasing differs from a loan in one critical way: you do not own the asset. Under a lease, the lessor (leasing company) retains ownership; you make scheduled payments for the right to use the equipment and return or purchase it at lease end. The tax treatment also differs: operating lease payments are fully expensed (above-the-line operating expense), while equipment loan interest is deductible and the equipment itself is depreciated. Under IRS Section 179, businesses can deduct up to $2.56 million (2026 limit) of equipment purchase price in the year of purchase — accelerating the tax benefit of owning rather than leasing. IRS Section 168(k) bonus depreciation allows an additional first-year deduction (20% for assets placed in service in 2026, phasing to 0% in 2027 under current law). The lease-vs-buy decision turns on four factors: (1) how long you need the equipment, (2) obsolescence risk, (3) balance sheet presentation goals, and (4) tax position. For deep detail on the buy vs. lease decision framework, see our companion page on business loan for buying equipment vs. leasing.
Equipment: $200,000 commercial printing press, 7-year useful life. Equipment loan option: $200,000 at 9% APR, 60-month term. Monthly payment: $4,152. Total repayment: $249,120. Year-1 Section 179 deduction available: up to $200,000 (full purchase price). Equipment lease option: $4,800/month, 60 months, $1 purchase option. Total lease payments: $288,000. No Section 179 on operating lease (expense deducted over lease term). Net cost after tax (35% bracket): Loan = $249,120 − $70,000 (Section 179) = ~$179,120. Lease = $288,000 − ~$100,800 (lease expense deduction over 5 years) = ~$187,200. Buying and financing wins on total cost; leasing may win if capital preservation and balance sheet optionality are priorities.