Types of Business Loans for Equipment Financing

The main types of business loans used to finance equipment are equipment financing (a purchase-money loan or lease secured by the equipment itself), traditional term loans, business lines of credit, SBA 7(a) and 504 loans, and revenue-based funding from an MCA marketplace. Equipment financing is usually the cheapest way to buy a specific machine because the asset serves as its own collateral, which is why lenders will fund borrowers who could not qualify for an unsecured loan. But it is slow, paperwork-heavy, and tied to one purchase — so operators who need working capital alongside the equipment, or who need cash in a day or two, often turn to a revenue-based advance approved on bank deposits instead of credit. This guide walks through each type, when it wins, when it costs you, and how to decide.

The five financing types that actually buy equipment

Every real-world equipment purchase gets funded through one of these structures. They differ on what secures the loan, how fast you close, and what the lender underwrites.

• Equipment financing / leasing. A purchase-money loan or lease where the equipment is the collateral. Terms typically run 2–7 years, often matched to the useful life of the asset. Because the lender can repossess the machine, credit requirements are more forgiving than an unsecured loan — but you still face applications, invoices, and vendor quotes.
• Traditional term loan. A lump sum from a bank or online lender, repaid on a fixed schedule. Good for established businesses with strong credit; slower and more documentation-heavy, and often requires a personal guarantee.
• Business line of credit. A revolving limit you draw against as needed. Flexible for smaller tools or staged purchases, but limits are usually lower and rates float.
• SBA 7(a) and 504 loans. Government-backed loans with long terms and low rates. The 504 program is purpose-built for major equipment and real estate. Excellent pricing, but expect weeks of underwriting and heavy paperwork.
• Revenue-based funding (MCA marketplace). An advance repaid from a percentage of daily or weekly deposits, approved on your bank statements and revenue rather than credit or the asset. Fastest to fund and most forgiving on credit; priced for speed, not for the lowest cost of capital.

How equipment financing works and why it's usually cheapest

In equipment financing the machine you're buying is the collateral. That single fact drives everything: the lender's downside is protected by an asset it can repossess and resell, so it can offer longer terms and lower rates than an unsecured loan, and it can approve borrowers with thinner credit. A restaurant financing a $40,000 walk-in cooler, or a contractor buying a $90,000 skid steer, is a textbook fit.

The tradeoff is scope and speed. Equipment financing pays a vendor for a specific asset — it does not put working capital in your account for payroll, materials, or the labor to install the machine. And funding is rarely instant: the lender wants the vendor quote, may inspect or title the equipment, and runs standard underwriting. For a planned capital purchase weeks out, that's fine. For a machine that broke this morning and is costing you revenue every hour it's down, the timeline can be the problem.

When revenue-based funding beats a dedicated equipment loan

Plenty of equipment needs don't fit the clean "one asset, plenty of time, good credit" picture. When the purchase is bundled with other costs, when timing is urgent, or when your credit won't clear a bank, a revenue-based advance from an MCA marketplace is often the more honest fit.

A marketplace underwrites on bank deposits and revenue, not on the equipment or your FICO. Typical parameters: minimum around $10,000, credit accepted from roughly FICO 500+, and funding in 24–48 hours once statements are in. Repayment comes as a fixed percentage of sales, so it flexes with your cash flow instead of a rigid amortization schedule. It is more expensive than a secured equipment loan — you are paying for speed and access, not the lowest rate — and it is never guaranteed. But when a used machine at auction has to be bought today, or when you need the equipment plus the cash to install and staff it, that flexibility earns its cost.

Decision framework: which type fits your situation

Match the tool to the job rather than defaulting to whatever your bank offers.

Choose dedicated equipment financing when: you're buying one clearly-defined asset, you have weeks before you need it, your credit is fair-to-good, and lowest cost of capital is the priority. The asset-as-collateral structure will almost always give you the best rate.

Choose SBA 504 when: the purchase is large, long-lived, and you can absorb weeks of underwriting for the best available terms.

Choose a line of credit when: you're buying smaller tools over time, or want a reusable cushion rather than a single lump sum.

Choose revenue-based funding when: speed matters (you need it in a day or two), your credit is below bank thresholds (FICO 500s–600s), the equipment cost is bundled with working capital, or a lender turned you down and the machine can't wait. Works best for businesses with steady deposits; avoid it if your margins are thin and a percentage-of-sales repayment would starve day-to-day operations.

Avoid revenue-based funding when: you have time and good credit and a secured equipment loan is available — you'd be paying a speed premium you don't need.

Side-by-side: the same $50,000 machine, five ways

Illustrative only — actual terms depend on your business, the asset, and the lender. Figures are labeled for example to show relative tradeoffs, not quotes.

Note how the credit floor drops and the funding speed rises as you move down the table — you trade cost of capital for access and speed.

What lenders check before funding equipment

Knowing what each underwriter weighs helps you apply where you'll actually get approved.

• Equipment lenders want the vendor quote or invoice, the asset's make/model/age, and your business credit. Used or specialized equipment can require a larger down payment.
• Banks and SBA lenders want tax returns, financial statements, a business plan for large purchases, and strong personal credit with a guarantee.
• MCA marketplaces want the last 3–6 months of business bank statements. They're reading average daily balances, deposit consistency, and existing advance positions — not the equipment. That's why a business with healthy deposits but a 540 FICO can clear a marketplace when a bank says no.

If you're unsure whether your revenue supports funding, a marketplace review is low-friction: statements in, an answer in a day, no impact on the equipment purchase if you pass.

Combining working capital with the equipment purchase

The trap operators fall into is financing the machine and forgetting everything around it. A $60,000 piece of equipment often carries delivery, installation, electrical or plumbing upgrades, training, and the payroll to run it — costs a purchase-money loan won't cover because that loan pays a vendor for one asset. You end up with the machine and no cash to turn it on.

This is where a revenue-based advance is frequently used alongside, or instead of, a dedicated equipment loan: one funding event covers the asset and the working capital to deploy it, sized to your deposits and repaid as a share of sales. It costs more than the secured loan on paper, but it prevents the far more expensive outcome of an idle machine. Some operators split the difference — equipment financing for the asset, a smaller advance for the ramp — and let the two structures do what each does best.