Equipment Financing vs Working Capital Loan for Small Business 2026

Banks, credit unions, equipment lenders, and SBA 504 program

Equipment Financing

Buy the equipment you need — the asset secures the loan, keeping other collateral free.

• Rate range: 6–25% APR
• LTV: Up to 100%
• Loan term: 2–7 years
• Use of proceeds: Equipment only

Pros

• Equipment serves as its own collateral — no need to pledge business or personal assets separately
• Lower rate than unsecured working capital products for the same credit profile
• Longer repayment terms align with the asset's useful life and revenue it generates
• Section 179 deduction may allow immediate expensing of the full equipment cost. Source: irs.gov/publications/p946.

Apply for Equipment Financing →

Banks, non-bank lenders, and SBA 7(a) program

Working Capital Loan

Short-term unrestricted capital to keep operations running — payroll, inventory, cash flow.

• Rate range: 10–40% APR
• Loan amount: $10K–$500K
• Repayment term: 3–24 months
• Use of proceeds: Unrestricted

Pros

• No restriction on use — fund any operational need without justifying the expense to a lender
• Faster to fund than equipment financing for comparable amounts
• Short-term structures match short-term operational needs
• Accessible to businesses that don't have a capital asset to purchase

Apply for a Working Capital Loan →

You can, but it is usually the wrong product. Equipment typically has a 5–10 year useful life; a working capital loan is designed for 3–24 month repayment horizons. Financing long-duration assets with short-term products creates a maturity mismatch: you will repay the loan years before the asset finishes paying off, and you will likely need to refinance — adding cost and complexity. Equipment financing matches repayment to the asset’s useful life, typically offers lower rates because the equipment serves as collateral, and may qualify for Section 179 expensing (IRS Publication 946 at irs.gov). Use working capital loans for operational expenses; use equipment financing for capital assets.

Many equipment lenders finance 80–100% of the equipment value, using the asset itself as collateral — so down payment requirements are often minimal. SBA 504 equipment loans require a 10% down payment in most cases. Non-bank equipment lenders may structure 0% down for new equipment from established manufacturers, or require 10–20% down for used equipment. Compare to a working capital loan, which requires no collateral but charges a higher rate to compensate.

Non-bank equipment lenders can approve and fund in 24–72 hours for transactions under $150K with standard documentation. Bank equipment loans take 1–3 weeks. SBA 504 equipment financing takes 45–90 days (SBA approval plus bank underwriting plus closing). Working capital loans from non-bank lenders fund in 24–72 hours. If you need equipment immediately and your timeline is tight, a non-bank equipment lender or working capital loan is faster than a bank or SBA program.

Section 179 is an IRS provision that allows businesses to deduct the full purchase price of qualifying equipment in the year it is placed in service, rather than depreciating it over multiple years. This applies to financed equipment — you do not have to pay cash to claim the deduction. Consult a qualified tax advisor about your specific situation; IRS Publication 946 at irs.gov covers the full rules. This is a potential cash-flow advantage of equipment financing over using working capital for the same purchase.

Most equipment financing from banks and non-bank lenders requires a personal guarantee from owners with 20% or more equity in the business, especially for companies under 3 years old or those with limited credit history. SBA equipment programs always require a personal guarantee per program rules (sba.gov). Some non-bank equipment lenders will waive the personal guarantee for established businesses with strong financials and clear debt-service capacity. A working capital loan similarly requires a personal guarantee in most cases from non-bank lenders. The Federal Reserve Small Business Credit Survey documents personal guarantee requirements across SMB lending products at fedsmallbusiness.org.

Bank equipment loans typically require a 680+ personal FICO, 2+ years in business, and strong cash-flow documentation. SBA 504 equipment financing has similar credit requirements. Non-bank equipment lenders are more accessible — many approve at 600–640 FICO, though rates increase below 650. Working capital loans have comparable credit requirements at the bank level but may be accessible at 550+ FICO through non-bank online lenders for businesses with strong revenue. For both products, time in business and monthly revenue are strong secondary factors. Source: Federal Reserve Small Business Credit Survey at fedsmallbusiness.org.