Purchase machinery, vehicles, or technology with the equipment serving as the primary collateral. Lower rates than working-capital products, longer terms, and structural tax advantages.
Equipment financing solves a specific problem: a piece of equipment that will produce revenue for the next 5–7 years shouldn't be paid for in one lump sum out of working capital. The cash that funds payroll and inventory is too valuable to lock up in a single asset purchase.
The product is structurally clean. The equipment serves as the primary collateral, the loan term matches (or sits inside of) the equipment's useful life, and the rate is generally a fraction of what you'd pay on a working-capital product because the asset secures the deal.
Two main structures:
Most small business equipment financing today is structured as a loan with a UCC-1 filing on the equipment, not as a true lease — even when called a 'lease' colloquially. Read the contract to see which you're actually signing.
Three things move the rate: borrower credit (700+ FICO is the cliff for the best pricing), equipment type and resale market (a Class 8 truck has a deep secondary market and prices well; specialized restaurant equipment has a thinner market and prices higher), and term length (longer terms mean higher total cost but lower payments).
On a $50,000 equipment loan at 14% APR over 60 months, monthly payment is roughly $1,163 and total cost over the term is roughly $69,800 — meaningfully cheaper than the same $50,000 financed via a 1.28-factor MCA over 9 months ($64,000 payback in dollars but ~60% effective APR vs. 14%). The trade is the longer commitment and the requirement that the equipment exist with vendor documentation.
Equipment buyers often time purchases around Section 179 and bonus depreciation rules — both let qualifying business equipment be expensed (in part or in full) in the year of purchase rather than depreciated over years. The interaction with financing is straightforward: the equipment can be financed and still qualify for the deduction, as long as it's placed in service in the tax year. Talk to your CPA about the specific limits each year.
Three watchouts: prepayment penalties (some equipment financing carries hard prepayment penalties — confirm before signing), residual value structures on leases (a 'fair market value' residual can vary significantly), and personal guarantees (most equipment financing for SMBs requires a personal guarantee even when the equipment itself is the primary collateral).
Often no — many lenders offer 0% down for qualified borrowers. Down payments of 10–20% are common for newer businesses, weaker credit, or specialized equipment. The equipment itself is the primary collateral, which is why down payment requirements are lower than for unsecured products.
Yes, though most lenders cap the equipment age at 5–10 years depending on type. Trucks, manufacturing equipment, and construction machinery are commonly financed used; specialized or rapidly-depreciating equipment is harder.
An equipment loan means you own the equipment and pay it off over time, ending with full ownership. An equipment lease means the lender owns it; at end-of-term you can buy it (for a residual), return it, or renew. Many products marketed as 'leases' are functionally loans — read the contract to see which you're signing.
Most equipment financing approvals come back in 24–72 hours and fund within 2–10 business days after vendor invoicing is complete. Same-day approvals are common for files under $150,000 with strong credit.
Approval starts at 600+ owner FICO with 12+ months in business and a clean industry. Best pricing typically requires 700+ FICO and 24+ months in business. Sub-600 approvals exist but at higher rates and often with a 10–20% down payment.
The interest portion of equipment loan payments is typically deductible. Section 179 and bonus depreciation rules may also let you deduct a large portion of the equipment's cost in the year placed in service — confirm the specifics with your CPA, as the limits change yearly.