Loan type
Equipment financing: when the machine is the collateral
Because the equipment secures the loan, approval leans on the asset rather than purely on you. That makes this the most accessible real financing for many young businesses.
At a glance
| Typical amount | $5,000 to $5 million |
|---|---|
| Financing percentage | Up to 100% of cost, and sometimes soft costs like delivery and installation |
| Rate | 7.0% - 30.0% APR |
| Term | 2 to 7 years, usually matched to the asset's useful life |
| Collateral | The equipment itself; sometimes nothing else |
| Down payment | 0% to 20% |
| Credit | Workable from about 600; strong asset can offset weak credit |
| Time to funding | 1 to 10 days for standard equipment |
A good fit when
You are buying a specific, identifiable, resaleable asset that will produce revenue over years.
A poor fit when
The asset is highly specialized with no resale market, or you will outgrow it before the loan is repaid.
Why this is the easiest door
In most business lending the lender is betting on your cash flow and hoping the collateral is never relevant. In equipment financing the collateral is the point. A used CNC machine, a reefer trailer, a commercial oven — these have auction values the lender can look up. That changes the risk calculus enough that equipment lenders will approve businesses that a bank would not return a call to.
The consequence is that the asset drives the terms. Common, liquid, standardized equipment gets long terms, high advance rates, and decent pricing. Custom, niche, or rapidly obsolescing equipment gets short terms, big down payments, and a rate that reflects the resale problem.
Loan, lease, or something in between
| Equipment loan | $1 buyout lease | Fair market value lease | |
|---|---|---|---|
| You own it | Immediately | At the end, for $1 | Only if you buy it at market value |
| On the balance sheet | Yes, as an asset and a debt | Yes, effectively a purchase | Depends on lease accounting |
| Monthly payment | Higher | Similar to a loan | Lowest |
| Down payment | 0% to 20% | Often first and last payment | Often first payment only |
| Best when | You will use it for its whole life | Same as a loan, sometimes cheaper | The technology dates fast and you will replace it |
Where the real money is made and lost
- Match the term to the useful life. A five-year loan on equipment that lasts three years means paying for a machine you no longer have. A three-year loan on a fifteen-year asset strangles cash flow for no reason.
- Watch the documentation fee. $250 to $1,500 is normal; some lenders charge far more and bury it in the amount financed.
- Interim rent on leases. Some leases charge from delivery to the first payment date at a daily rate. Ask when the clock starts.
- End-of-lease terms on an FMV lease. Automatic renewal clauses, return conditions, and restocking charges can quietly turn a cheap lease into an expensive one. Read the return provisions before you sign the first page.
- Vendor financing is convenient, not always cheap. The dealer's finance arm is one quote. Get a second from an independent equipment lender and a third from your bank.
Used equipment and private-party sales
Most equipment lenders will finance used equipment, often up to a certain age or hours. Private-party purchases are harder — the lender wants an invoice, a clear title path, and sometimes an inspection or appraisal. Budget an extra week and expect a slightly lower advance rate. Auction purchases are harder still, and usually require pre-approval before you bid.
Questions people actually ask
Can I get equipment financing with bad credit?
More often than for any other product. Because the asset secures the loan, lenders will work in the 600s routinely and sometimes below, with a larger down payment. Very common equipment with a deep resale market gives you the most room.
Does equipment financing require a down payment?
Not always. 100% financing is common for standard equipment with good credit, and some lenders will finance soft costs like delivery and installation on top. Weaker credit or specialized equipment typically means 10% to 20% down.
Should I use an SBA loan for equipment instead?
If the equipment has a remaining useful life of ten years or more and the project is large, an SBA 504 will almost certainly be cheaper. For anything faster, smaller, or shorter-lived, dedicated equipment financing wins on speed and simplicity by a wide margin.