Equipment loans put needed tools to work now and repay from the revenue they generate — using the equipment as collateral, not working capital.
Equipment financing is a secured loan where the equipment is the collateral — typically covering 80–100% of new purchases over 2–7 year terms with 10–20% down. For major equipment with a 10+ year useful life, SBA 504 offers a fixed-rate 10-year debenture at 10% down. For smaller purchases, conventional equipment financing is faster. IRS Section 179 may allow deducting the full equipment cost in the year of purchase.
Equipment is the physical infrastructure of most small businesses — the commercial ovens a restaurant can't open without, the excavator a contractor builds revenue around, the diagnostic imaging a medical practice bills against. That equipment is also expensive, and tying up working capital to buy it outright leaves nothing for payroll, inventory, or the next opportunity.
Equipment financing closes that gap. It lets businesses acquire needed tools now and repay from the revenue those tools generate — with the equipment itself serving as the loan's collateral, not your operating cash.
According to the Federal Reserve Small Business Credit Survey 2024, equipment and vehicle purchases rank among the top financing motivations for employer firms — consistent with the reality that businesses scaling their physical capacity need capital to acquire the assets that create it.
Equipment financing is a secured loan where the equipment is the collateral. The lender holds a lien on the equipment until the loan is repaid. If the borrower defaults, the lender can repossess and liquidate the collateral.
This collateral structure drives favorable economics:
Not every financing arrangement transfers ownership. Equipment leases are the alternative.
Equipment loan: You borrow the purchase price, make fixed monthly payments, and own the equipment at payoff. Ownership creates a potential tax benefit — under IRS Section 179, businesses may be able to deduct 100% of qualifying equipment costs in the year of purchase rather than depreciating over multiple years. This first-year expensing can substantially reduce the net effective cost of the purchase. Verify current Section 179 limits at IRS.gov and consult a qualified tax advisor, as the annual ceiling adjusts for inflation and phase-out rules apply.
Equipment lease: You rent the equipment for a defined term, make monthly payments, and return it at the end (or exercise a purchase option). Monthly payments typically run lower than loan payments on the same asset — useful when equipment becomes obsolete quickly (point-of-sale hardware, medical imaging devices) or when conserving cash flow matters more than building equity.
Decision rule: If you'll use the equipment for 5+ years and it holds long-term productive value, buying through a loan typically delivers better economics. If obsolescence is a real risk within 2–3 years, leasing may be the right structure. See equipment financing vs. MCA for a broader comparison of financing structures against specific SMB situations.
Equipment financing underwriting weighs the borrower's ability to repay and the equipment's value as collateral.
Borrower signals: - Time in business: Most conventional equipment lenders require 1–2 years of operating history. Startups under 2 years have narrower options — SBA-backed programs or specialized equipment lenders that weight collateral value more heavily than business history. - Monthly revenue: The loan payment must fit within the business's cash flow. Lenders model repayment capacity against your documented revenue to confirm the new obligation doesn't crowd out other needs. - Credit score: A FICO score of 620 or above is a common floor for conventional equipment lending. Scores above 680 typically access better rates; scores below 600 may be limited to SBA programs or alternative lenders at higher cost.
Equipment signals: - Age and condition: New equipment in good working order is preferred collateral. Equipment over 7–10 years old faces narrower financing options or higher down-payment requirements. - Type and resale marketability: Standard commercial vehicles, restaurant equipment, medical devices, and industrial machinery with active secondary markets attract better terms than highly specialized assets with limited resale value.
vs. Term loan: A term loan isn't purpose-specific — proceeds can go toward working capital, inventory, or operations alongside equipment. Equipment financing is asset-specific but often faster when the asset is clearly defined. If you need working capital alongside the equipment purchase, a term loan may be more flexible.
vs. SBA 504: The SBA 504 program can finance major equipment with a useful life of 10+ years — industrial machinery, medical imaging, qualifying commercial vehicles — using a 10-year fixed-rate CDC debenture with as little as 10% down. The 504 makes economic sense for major equipment projects (typically $500K+) where the fixed-rate debenture justifies the 60–90 day close timeline. For equipment under $500K, conventional equipment financing is usually faster and more cost-effective given 504's fixed closing costs. See the SBA 504 loan guide for the full structure.
vs. SBA 7(a): The SBA 7(a) program is the general-purpose SBA loan — eligible for equipment alongside working capital, real estate, and business acquisitions. The 7(a) can bundle equipment with working capital in a single loan, which 504 cannot. Trade-off: SBA 7(a) is slower than conventional equipment financing for businesses that qualify on their own credit strength.
vs. Line of credit: A business line of credit is built for recurring working-capital needs — inventory, payroll bridges, seasonal cash-flow gaps. Tapping a revolving line to finance a 7-year piece of machinery mismatches the liability term to the asset life. Use equipment financing for the equipment; preserve the line of credit for operating-capital needs.
Virtually every industry that operates with physical assets can access equipment financing. Common use cases:
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*This content is for educational purposes only and does not constitute financial or tax advice. Equipment financing terms, SBA program rules, and IRS Section 179 limits adjust annually — verify current details at sba.gov and irs.gov and consult a qualified professional for your specific situation.*
Equipment financing is a secured loan or lease where the equipment itself serves as collateral. The lender holds a lien on the asset until the loan is repaid. This collateral structure lets lenders finance 80–100% of new equipment at competitive terms — because if payments stop, the lender can repossess and sell the equipment to recover what's owed. Common for commercial vehicles, restaurant equipment, medical devices, industrial machinery, and construction equipment.
Most conventional equipment lenders look for a FICO score of 620 or above. Scores above 680 typically access better rates and terms. Scores below 600 may limit options to SBA-backed programs or specialized equipment lenders at higher cost. Time in business and monthly revenue carry significant weight alongside credit — a business with 2+ years of operating history and strong cash flow may qualify even with moderate credit.
Buying through a loan builds equity and allows a potential IRS Section 179 deduction — the ability to deduct 100% of qualifying equipment costs in the purchase year rather than depreciating over time. Leasing offers lower monthly payments and easier upgrade cycles, which suits equipment with rapid obsolescence (tech hardware, medical imaging devices). If you'll use the equipment for 5+ years and it holds long-term productive value, buying typically delivers better economics. For equipment that becomes obsolete in 2–3 years, leasing may be the right structure.
Startups under 2 years old face a narrower set of options. Most conventional equipment lenders require at least 1–2 years of operating history. The most accessible paths for early-stage businesses are: SBA 7(a) loans (the general-purpose SBA program eligible for equipment with startup-friendly structures), SBA Microloan program (up to $50K for early-stage businesses through nonprofit intermediaries), and specialized equipment lenders that place more weight on the equipment's collateral value than on business history.
The SBA 504 program can finance major equipment with a documented useful life of at least 10 years — industrial machinery, medical imaging, qualifying commercial vehicles. The structure uses a 10-year fixed-rate CDC debenture with 10% down for established businesses. Total project costs typically need to be $500K+ for 504's fixed debenture closing costs to be economical. For equipment under $500K, conventional equipment financing or SBA 7(a) is usually faster and more cost-effective.