What is Equipment Financing?
Learn what equipment financing is, how it works, and the different ways businesses can finance machinery, vehicles, and other equipment purchases.
Equipment financing is a type of business funding specifically used to purchase machinery, vehicles, technology, or other equipment. The equipment itself typically serves as collateral, making it easier to qualify for than unsecured financing.
How Equipment Financing Works
With equipment financing, a lender provides funds to purchase equipment, and you repay the loan over time with interest. The equipment secures the loan, meaning the lender can repossess it if you default.
Because the equipment serves as collateral, lenders often finance up to 100% of the equipment cost, though some require a down payment of 10-20%.
Equipment Loans vs. Equipment Leases
There are two main ways to finance equipment:
- Equipment loan: You borrow money to buy the equipment and own it outright after paying off the loan. You can claim depreciation for tax purposes.
- Equipment lease: You pay to use the equipment for a set term. At the end, you may return it, buy it, or renew the lease. Lease payments are typically tax-deductible as an operating expense.
Lease vs. Buy
Leasing makes sense for equipment that becomes obsolete quickly (like computers) or when you want to preserve capital. Buying makes sense for equipment with long useful lives or when you want to build equity.
Typical Terms and Rates
Equipment financing terms vary based on the equipment type and your creditworthiness:
- Loan amounts: $5,000 to several million dollars
- Terms: Typically 2-7 years, often matched to the equipment's useful life
- Interest rates: 5% to 30%, depending on credit profile and lender type
- Down payment: 0% to 20% depending on the lender and equipment
What Equipment Can Be Financed?
Almost any business equipment can be financed:
- Vehicles (trucks, vans, company cars)
- Manufacturing machinery
- Construction equipment
- Medical and dental equipment
- Restaurant equipment
- Office furniture and computers
- Point-of-sale systems
Qualification Requirements
Equipment financing is often easier to qualify for than unsecured loans because the equipment provides security. Lenders typically evaluate:
- Credit score (personal and business)
- Time in business
- Revenue and cash flow
- The type and value of equipment
- Whether the equipment is new or used
New businesses often find equipment financing more accessible than other loan types because the equipment provides built-in collateral for the lender.
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Read more →Important Disclosure
Not Financial Advice: The information provided in this article is for general informational purposes only and does not constitute financial, legal, or professional advice. You should consult with qualified professionals before making any financial decisions.
No Guarantee of Financing: Liminal Lending Co. is a business loan marketplace that connects borrowers with third-party lenders. We are not a lender and do not make credit decisions. Submitting an application does not guarantee approval or funding. Loan terms, rates, and availability vary by lender and are subject to borrower qualifications and lender criteria.
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Rate Information: Rates, terms, and fees mentioned in this article are estimates based on publicly available information and may not reflect current market conditions or specific lender offers. Actual rates depend on creditworthiness, business financials, and lender policies.
Information May Change: Financial markets, lending regulations, and economic conditions are subject to rapid change. While we strive to keep our content accurate and up-to-date, information in this article may become outdated. Always verify current rates, terms, program availability, and regulatory requirements with lenders and official sources before making financial decisions.