What is equipment financing and how does it work?

Equipment financing is a loan or lease used specifically to acquire business equipment — machinery, vehicles, computers, or other hard assets. The equipment itself serves as collateral, so the lender takes less risk and rates are typically lower than for unsecured loans. You make fixed monthly payments over a term that usually matches the asset's useful life, and you own the equipment outright once it's paid off.

What credit score do I need for equipment financing?

Many lenders approve equipment financing with personal credit scores in the high 500s to low 600s because the equipment secures the loan. Scores of 680 and above unlock the lowest rates and longest terms. Strong business revenue and time in operation can offset a thinner credit profile.

Can I finance used equipment?

Yes. Many lenders finance used and refurbished equipment, though terms are often shorter and rates slightly higher than for new equipment because used assets depreciate faster and have less predictable resale value. Expect to provide the seller's invoice or a valuation.

Is it better to lease or finance equipment?

Financing makes sense when you'll use the equipment for years and want to build equity and own it. Leasing fits equipment that ages quickly or that you only need short-term, with lower monthly payments and easier upgrades. The right choice depends on the asset's useful life, your cash flow, and tax strategy.

Equipment Financing: A Complete Guide for Business Owners

Equipment financing lets your business buy machinery, vehicles, or tech and pay over time while the equipment secures the loan. Here's how it works, what it costs, and when to use it.

Equipment financing is a loan or lease that lets your business acquire machinery, vehicles, or technology and pay for it over time, with the equipment itself serving as collateral. Because the asset secures the loan, rates are typically lower than unsecured options, and you can preserve cash while putting the equipment to work immediately.

Whether you run a restaurant that needs a new walk-in cooler, a contracting firm buying an excavator, or a clinic upgrading imaging machines, equipment is often the single largest capital expense a business faces. Paying cash drains your reserves; the right financing spreads the cost across the years the equipment earns its keep.

Key takeaway

The asset secures the loan, so equipment financing is usually easier to qualify for and cheaper than unsecured borrowing. Match the loan term to how long the equipment will actually be productive — financing a five-year machine over five years keeps payments aligned with the revenue it generates.

How does equipment financing work?

A lender advances the funds to buy a specific piece of equipment — often up to 100% of the cost, sometimes with a small down payment of 10-20%. You repay in fixed monthly installments over a set term, typically two to seven years depending on the equipment's expected lifespan. Because the equipment is the collateral, the lender can repossess it if you default, which lowers their risk and your rate.

Once you make the final payment, you own the equipment free and clear. This is the key distinction from a true lease, where ownership stays with the lessor unless you exercise a buyout.

What does equipment financing cost?

Costs are driven by your credit, the equipment type, the term length, and whether the equipment is new or used. Annual percentage rates generally land between the high single digits and the low-to-mid thirties for higher-risk profiles. Here's a realistic picture for a $75,000 purchase.

Illustrative monthly payments on $75,000 of equipment financing across credit tiers. Actual offers vary by lender, equipment, and term.
Credit profile	Estimated APR	Term	Est. monthly payment
Strong (680+)	9% – 14%	60 months	$1,557 – $1,745
Mid (620 – 679)	15% – 22%	48 months	$2,086 – $2,330
Building (580 – 619)	23% – 34%	36 months	$2,933 – $3,260

Run your own numbers before you talk to a lender so you know what payment your cash flow can absorb.

Estimate your monthly payment

A representative estimate at 9%–36% APR. Actual rates and terms vary by business and product.

Amount

Term (months)

$2,968– $1,866 / mo (est.)

You can also use the standalone payment calculator to model different terms and amounts.

Equipment loan vs. equipment lease: which is right?

Both get equipment in your hands without paying cash upfront, but they serve different needs.

Pros

Financing builds equity — you own the asset outright at the end
Fixed payments make budgeting predictable
Section 179 may let you deduct the full purchase price the year you buy
No restrictions on hours, mileage, or modifications

Cons

Higher monthly payments than a lease for the same equipment
You carry the risk of obsolescence on fast-aging tech
May require a down payment
You're responsible for resale or disposal at end of life

Rule of thumb

Finance equipment with a long, stable useful life — kitchen hoods, trailers, manufacturing machinery. Lease equipment that ages or upgrades quickly, like computers, point-of-sale systems, or diagnostic tech, so you're not stuck owning a depreciated asset.

What can you finance?

Almost any hard business asset qualifies, including:

Construction and heavy equipment (excavators, loaders, lifts)
Commercial vehicles and trucks
Restaurant and commercial kitchen equipment
Medical and dental devices
Manufacturing and CNC machinery
Computers, servers, and office technology
Farm and agricultural equipment

If the equipment retains resale value and has a clear useful life, a lender can usually underwrite it.

How do you qualify and apply?

Equipment financing is among the more accessible forms of business credit because the loan is self-securing. Lenders still want to see that your business can support the payment.

Identify the exact equipment and cost

Get a quote or invoice from the vendor. Lenders finance against a specific asset, so a precise cost — including tax, delivery, and installation — sharpens your application.

Gather your documentation

Most lenders ask for three to six months of business bank statements, basic business details, and the equipment quote. Larger amounts may require tax returns and financial statements.

Compare offers across the network

Rates, terms, and down-payment requirements vary widely. Comparing several offers on the same purchase can save thousands over the life of the loan.

Fund and take delivery

On approval, the lender typically pays the vendor directly and your repayment schedule begins. Many deals fund within a few business days.

When does equipment financing beat other options?

If you need the asset for years and want to own it, equipment financing is usually the cheapest path because of the collateral. But it isn't always the best fit:

For mixed needs — equipment plus payroll, inventory, or marketing — a working capital loan or business line of credit gives you flexible cash you can deploy anywhere.
For a broad expansion with no single asset to pledge, a general term loan may be simpler.
If you qualify and can wait on the longer timeline, an SBA loan can finance equipment at very competitive rates. Note that the SBA sets program guidelines, and individual lenders add their own overlays on credit, revenue, and documentation, so requirements vary lender to lender.
When you need money fast and the equipment is secondary, options like a merchant cash advance or invoice factoring trade higher cost for speed.

Watch the total cost, not just the monthly payment

A longer term lowers your monthly payment but raises the total interest you pay — and you can end up still paying for equipment that's near the end of its useful life. Aim to have the loan paid off before the equipment stops earning.

For most owners, the smartest move is to compare a dedicated equipment financing offer against a flexible working-capital option and pick the structure that matches how long the asset will actually serve the business.

Ready to finance your next piece of equipment?

Get matched to business financing in about 2 minutes. No upfront fees.

See your equipment financing options →