Equipment is often the most capital-intensive purchase a small business makes — and it’s also one of the most accessible categories of business financing. Because the equipment itself serves as collateral, equipment lenders can approve applications with lower credit scores and less operating history than unsecured working capital products.

The key decision most business owners face isn’t whether to finance — it’s whether to finance or lease. Both structures allow you to acquire and use equipment without deploying full purchase price upfront. But they work differently, have different tax implications, and suit different situations.

How Equipment Financing Works

An equipment loan (also called equipment financing) works like any secured loan: the lender provides funds to purchase the equipment, you make fixed payments over a defined term, and the equipment is yours once the loan is repaid. The equipment serves as collateral — if you default, the lender can repossess it.

Key Terms

• Down payment: Many equipment lenders offer 100% financing with $0 down for established businesses. Some transactions require 10–20% down, particularly for high-risk equipment types or lower-credit borrowers.
• Term: Equipment loan terms typically range from 2–7 years, with longer terms available for larger or specialized equipment.
• Rate: Interest rates vary based on credit profile, time in business, equipment type, and lender — typically ranging from 6–25%+ APR for straightforward transactions at alternative lenders.
• Ownership: You own the equipment from day one. This matters for depreciation (Section 179 deduction, bonus depreciation) and for collateral/resale value.

How Equipment Leasing Works

An equipment lease is an agreement where the leasing company (lessor) owns the equipment and you (lessee) pay for the right to use it over a defined period. At the end of the lease, you typically have three options: return the equipment, purchase it at fair market value (or a predetermined price), or renew the lease.

Two Main Lease Types

Operating Lease (True Lease): Designed for equipment you want to use without owning — especially technology or equipment that depreciates quickly or needs regular upgrading. Payments are lower because you’re not building toward ownership. At lease end, you return the equipment or upgrade to newer models. Lease payments are fully deductible as operating expenses.

Capital Lease (Finance Lease): Structured to transfer ownership eventually — often with a $1 buyout at lease end. Economically similar to a loan. The equipment appears on your balance sheet as an asset. Used when ownership is the goal but the flexibility of lease structure (off-balance-sheet treatment, lower monthly payments) has tax advantages.

Equipment Financing vs. Leasing: Head-to-Head

Who Qualifies for Equipment Financing?

Equipment financing has more accessible qualification standards than most unsecured products because the equipment collateralizes the loan:

• Credit score: 550–600+ for standard transactions. Some lenders go lower for established businesses with strong revenue. Higher-credit borrowers get better rates.
• Time in business: 6+ months for most lenders. Some specialty lenders work with 3+ months for specific equipment types. Startup equipment financing (pre-revenue) is available with strong personal credit — typically 680+ — and a personal guarantee.
• Monthly revenue: $10,000–$15,000+/month for most lenders. Revenue below this range reduces options and available amounts.
• Down payment: $0 down is available for established businesses with 600+ credit. Lower-credit borrowers may need 10–20% down.

The equipment being financed matters as much as the borrower’s profile. New equipment from an established dealer is the most financeable scenario. Used equipment, private-party purchases, and specialty or niche assets have fewer lender options but are still financeable through specialty lenders.

What Equipment Qualifies for Financing?

Almost any tangible business asset qualifies for equipment financing, including:

• Construction & heavy equipment: Excavators, cranes, bulldozers, skid steers, compactors, lifts
• Transportation: Class 8 semis, box trucks, trailers, refrigerated units, fleet vehicles
• Medical equipment: Diagnostic imaging, dental chairs and technology, surgical systems, therapy devices
• Restaurant equipment: Commercial ovens, refrigeration units, walk-in coolers, POS systems, hood systems
• Manufacturing: CNC machines, lathes, presses, injection molding equipment, industrial printers
• Technology: Servers, workstations, network infrastructure, AV systems, specialized software hardware
• Agricultural: Tractors, harvesters, irrigation systems, livestock handling equipment

Intangible assets (software licenses, intellectual property) and consumables (inventory, supplies) don’t qualify as equipment for collateral purposes.

Financing Used Equipment

Used equipment financing is available through specialty lenders, though it involves additional considerations:

• Age restrictions: Most lenders have maximum equipment age limits (typically under 10–15 years for most categories). Older equipment has fewer lender options.
• Condition verification: Lenders may require inspection or appraisal for higher-value used equipment.
• Dealer vs. private party: Equipment purchased from a licensed dealer is easier to finance than private-party transactions. Both are possible, but private-party purchases require lenders with specific appetite for the transaction type.
• Value documentation: NADA, Blue Book, or formal appraisal establishes the collateral value. Lenders advance against collateral value — if the purchase price exceeds the appraised value, you may need a down payment to cover the gap.

Frequently Asked Questions