How equipment financing works
The lender pays the vendor, the business takes the equipment, and repays in fixed monthly payments over a term matched to the asset’s useful life. The lender holds a lien on the equipment until the last payment. Because the asset can be repossessed and resold, the lender takes less risk than on an unsecured loan, which shows up in lower rates, higher approval rates and longer terms. Almost anything with a resale market qualifies: trucks and trailers, construction and landscaping machinery, kitchen and refrigeration equipment, medical, dental and lab equipment, manufacturing and packaging lines, salon and gym equipment, point-of-sale and IT hardware, and used equipment from a dealer or auction with a clear title.
Two structures dominate. An equipment loan or equipment finance agreement transfers ownership at the end; payments are higher but the business owns the asset. An equipment lease keeps title with the lessor; payments are lower, the business may return, renew or buy out at the end, and a fair-market-value or $1 buyout option sets how much of the value it keeps. Leases suit equipment that dates quickly; loans suit equipment that lasts.
Rates, terms and what moves them
Published equipment financing rates in September 2026 run from about 6 percent APR for strong borrowers buying titled vehicles or hard assets, through 10 to 18 percent for typical small businesses, to 25 to 30 percent for newer businesses or weaker credit. Terms run two to seven years, occasionally ten for heavy machinery. Three things move the rate: the owner’s credit, the age and resale value of the equipment, and time in business. A 20 percent down payment lowers both the rate and the payment.
| Equipment cost | At 8% APR | At 14% APR | At 24% APR |
|---|---|---|---|
| $25,000 | $507 | $582 | $719 |
| $60,000 | $1,217 | $1,396 | $1,726 |
| $150,000 | $3,041 | $3,490 | $4,316 |
| $400,000 | $8,111 | $9,308 | $11,509 |
| Product | Typical amount | Time to fund | Cost (market range) | Minimums |
|---|---|---|---|---|
| Equipment financing | $10,000 – $2,000,000 (up to 100% of equipment cost) | 2 – 5 business days | APR roughly 7% – 30% | 6 months – 2 years (equipment secures the loan); 600+ typical; strong equipment can offset weaker credit |
| Business term loan | $10,000 – $500,000 | 1 – 3 business days (online lenders) | APR roughly 8% – 45% depending on credit, revenue and term | 1 – 2 years in business; 600+ typical; 640+ for better pricing |
| SBA loan | $50,000 – $5,000,000 (7(a)); up to $50,000 for microloans | 30 – 90 days | Variable APR capped by SBA rules: prime plus 2.25% – 4.75% in most cases | 2+ years in business (some programs accept startups with strong plans); 650+ typical; 680+ preferred |
| Business line of credit | $10,000 – $250,000 | 1 – 3 business days to open; draws often same day | APR roughly 10% – 60%; some lenders price as a weekly fee on the drawn balance | 6 – 12 months in business; 600+ typical |
How to qualify
Because the asset carries the deal, the floors are lower than for other products. Lenders typically want personal credit around 600 and up, a quote or invoice from a recognised vendor in the business’s name, three to six months of bank statements, and, for larger amounts, a recent tax return. Businesses under a year old qualify with fair credit and sometimes a down payment; startups with credit above 680 can often finance their first truck or machine from day one. Used equipment qualifies when it has a clear title and a resale market; private-party purchases and very old assets are harder.
The application file is short: the quote, ID, bank statements, formation documents and, for vehicles, the VIN and specification. Approval is often the same day; funding waits for the vendor invoice and, for vehicles, the title paperwork, so the whole process runs two to ten business days.
Have this ready
Equipment financing file
- Vendor quote or invoice in the business name
- Equipment specification, year, and VIN or serial number
- Three to six months of business bank statements
- Driver’s licence for each owner
- Formation documents and EIN
- Most recent tax return for amounts above $100,000
- Down payment source, if one is required
Tax treatment and section 179
Financed equipment can usually be expensed in the year it is placed in service under section 179 of the tax code, up to the annual limit, with bonus depreciation available on the remainder under current rules. That means a business can deduct the full cost of equipment it has only begun paying for, which often offsets a large part of the first year’s payments. Leases are treated differently: operating lease payments are generally deductible as an expense, while capital leases follow ownership rules. Confirm the treatment with your accountant before choosing between a loan and a lease.
Mistakes to avoid
Financing a ten-year asset with a nine-month advance is the most expensive mistake in small-business funding: the payment can be five times the equipment-loan payment for the same purchase. Buying from a private seller without title documentation limits the lenders who will touch the deal. Choosing a lease with a fair-market-value buyout for equipment you intend to keep hands the lessor the residual value. And financing installation, training or software separately when the equipment lender would have included them raises the total cost.