Equipment financing is a loan or lease that lets a business buy machinery, vehicles, technology, or other physical assets by using the equipment itself as collateral, with funding typically covering 80% to 100% of the purchase price. Because the equipment secures the loan, lenders take on less risk than with unsecured borrowing — which usually means faster approvals, lower rates, and more flexible credit requirements than a general term loan.
This structure makes equipment financing one of the most accessible funding types for small businesses. Owners with FICO scores as low as 550 can often qualify, terms run from 1 to 7 years to match the useful life of the asset, and many lenders approve applications within 24 to 48 hours. This guide explains how it works, what it costs, how to qualify, and when financing beats leasing or paying cash.
Key takeaways
- Equipment financing uses the purchased asset itself as collateral, so it typically requires no additional business or personal assets to secure the loan.
- Lenders commonly finance 80% to 100% of an equipment's purchase price, with funding usually starting around $10,000.
- FICO scores as low as 550 can qualify, since approval often relies on revenue and bank deposit history rather than credit alone.
- Terms typically run 1 to 7 years, matched to the useful life of the equipment.
- Approval commonly takes 24 to 48 hours, with some same-day funding available.
- APRs range from roughly 7%–12% for strong borrowers to 20%–35%+ for those building credit.
- A $50,000 loan at 12% APR over 5 years costs about $1,112 per month and roughly $66,720 in total.
- Section 179 may allow businesses to deduct the full cost of qualifying equipment in the year it's placed in service, even when financed.
- Down payments range from 0% for strong borrowers to 15%–25% for newer or lower-credit businesses.
- Financing is best for long-life assets you want to own, while leasing suits fast-obsolescing equipment like computers.
How Equipment Financing Works
With equipment financing, a lender advances the money to purchase a specific piece of equipment, and you repay it in fixed monthly installments over a set term. The equipment serves as collateral, so if you default, the lender can repossess and sell it to recover the balance. Once the loan is paid off, you own the asset outright.
- Funding amount: Typically 80%–100% of the equipment's cost. Some lenders finance 100% plus soft costs like delivery, installation, and taxes; others require a 10%–20% down payment.
- Collateral: The financed equipment itself. Because it's self-securing, you usually don't need to pledge other business or personal assets.
- Term length: 1 to 7 years, often matched to the expected useful life of the equipment.
- Repayment: Fixed monthly payments, making budgeting predictable.
Qualifying equipment includes commercial vehicles and trucks, restaurant and kitchen equipment, manufacturing and construction machinery, medical and dental devices, computers and IT hardware, agricultural equipment, and office furniture.
Rates, Terms, and Real Costs
Equipment financing is usually quoted as an annual percentage rate (APR), unlike revenue-based products that use a factor rate. Rates depend on your credit profile, time in business, the equipment type, and the down payment. Stronger borrowers see the lowest rates; newer businesses or lower credit scores pay more.
| Borrower Profile | Typical APR | Down Payment | Term | Approval Speed |
|---|---|---|---|---|
| Strong (FICO 700+, 3+ yrs in business) | 7%–12% | 0%–10% | 3–7 years | 1–3 days |
| Average (FICO 640–699, 2 yrs) | 12%–20% | 10%–15% | 2–5 years | 1–2 days |
| Building credit (FICO 550–639) | 20%–35%+ | 15%–25% | 1–4 years | Same day–48 hrs |
Example: A $50,000 piece of equipment financed at 12% APR over 5 years costs about $1,112 per month, for roughly $66,720 total — about $16,720 in interest. Newer equipment and higher credit scores lower that cost; a larger down payment reduces the amount financed and the total interest.
Apply with Merchant Fund Express in 60 seconds. Decisions in 2–4 hours.
How to Qualify
Equipment financing is easier to qualify for than most unsecured loans because the asset reduces lender risk. Common requirements include:
- Credit score: FICO 550+ is workable with many lenders; 600–650+ unlocks better rates.
- Time in business: 6 months to 2 years is common; startups can qualify but often pay higher rates or larger down payments.
- Revenue: Consistent revenue and healthy bank deposits matter more than perfect credit — approval is frequently based on cash flow and deposit history.
- Down payment: 0%–25% depending on your profile and the equipment.
- The equipment quote or invoice: Lenders finance a specific asset, so you'll need a vendor quote.
Minimum financing amounts typically start around $10,000, though some lenders fund smaller purchases. Because the loan is tied to a real, resellable asset, businesses that would struggle to get an unsecured term loan can often still get approved.
Financing vs. Leasing
Financing and leasing both let you use equipment without paying full price upfront, but they differ in ownership, cost, and flexibility.
| Factor | Equipment Financing (Loan) | Equipment Leasing |
|---|---|---|
| Ownership | You own it at the end | Lender owns it; you may buy or return at term end |
| Upfront cost | 0%–25% down | Often little to no money down |
| Monthly payment | Usually higher | Usually lower |
| Best for | Long-life assets you'll keep (trucks, machinery) | Fast-obsolescing assets (tech, computers) |
| Maintenance/upgrades | Your responsibility | Easier to upgrade at lease end |
| Total cost | Lower long-term if you keep the asset | Can be higher over time; flexible short-term |
Rule of thumb: finance equipment you'll use for many years and want to own; lease equipment that becomes outdated quickly or that you only need short-term.
Tax Advantages
Equipment purchases can offer meaningful tax benefits, which effectively lower your net cost. Under Section 179 of the U.S. tax code, businesses can often deduct the full purchase price of qualifying equipment in the year it's placed in service, rather than depreciating it over many years. Bonus depreciation rules may allow additional first-year write-offs.
- Financed equipment can still qualify for Section 179 — you may deduct the equipment's cost even though you paid for it over time.
- Interest paid on an equipment loan is generally a deductible business expense.
- Lease payments are often deductible as an operating expense.
Deduction limits and eligibility change year to year and depend on your situation, so confirm the current-year rules with a qualified tax professional before relying on them.
Pros, Cons, and When to Use It
Advantages:
- Preserves working capital — you don't drain cash reserves to buy equipment.
- The equipment secures the loan, so rates are typically lower than unsecured borrowing.
- Accessible credit requirements (FICO 550+) and fast funding (same day to 48 hours).
- Fixed, predictable monthly payments.
- Potential tax deductions and eventual full ownership.
Drawbacks:
- The equipment can be repossessed if you default.
- You may pay more over time than buying with cash.
- Financing only the specific asset — it can't cover payroll, marketing, or general working capital.
- Equipment can become obsolete before the loan is paid off.
Equipment financing makes the most sense when the asset directly generates revenue — a delivery truck, a commercial oven, a piece of production machinery — so the equipment helps pay for itself over the loan term.
Frequently asked questions
What credit score do I need for equipment financing?
Many lenders accept FICO scores as low as 550, especially when the equipment is new and holds strong resale value. Scores of 600–650 or higher generally unlock lower rates and smaller down payments. Because the equipment serves as collateral, approval often depends more on your revenue and bank deposit history than on credit alone.
How much can I finance?
Equipment financing typically starts around $10,000 and can reach into the millions for large machinery. Most lenders finance 80% to 100% of the equipment's purchase price, and some cover soft costs like delivery, installation, and taxes.
How fast can I get funded?
Approvals commonly take 24 to 48 hours, and some lenders approve simpler applications the same day. Once approved, funds are usually sent directly to the equipment vendor. Having your vendor quote and recent bank statements ready speeds things up.
Do I need a down payment?
Not always. Strong borrowers can qualify for 0% down (100% financing), while newer businesses or lower credit scores may need 10% to 25% down. A larger down payment reduces the amount financed, lowers your monthly payment, and can improve your rate.
Is equipment financing better than leasing?
It depends on the asset. Financing is usually better for long-life equipment you plan to keep and own, like trucks or industrial machinery, and often costs less over time. Leasing suits equipment that becomes obsolete quickly, like computers, and typically has lower monthly payments with easier upgrades.
Can a startup get equipment financing?
Yes. Startups and businesses under two years old can qualify, though they often face higher rates, larger down payments, or a personal guarantee. Because the equipment itself secures the loan, new businesses have a better shot at approval than they would with an unsecured term loan.
Is the interest tax-deductible?
Generally, yes — interest on an equipment loan is typically a deductible business expense, and the equipment itself may qualify for a Section 179 deduction or bonus depreciation. Tax rules change annually, so confirm eligibility and current limits with a qualified tax professional.
