How Equipment Financing Works
Equipment financing is a loan used specifically to buy business equipment, where the equipment itself serves as the collateral for the loan. That single feature explains almost everything else about the product. Because the lender can repossess and resell the asset if you stop paying, the loan is self-securing — the lender is not relying on your signature alone.
That security is why equipment financing tends to be one of the more accessible and affordable forms of business borrowing. Rates commonly run from about 7% to 20% as of mid-2026, and credit requirements are softer than for an unsecured loan of the same size, because the asset absorbs much of the lender's risk. It is the same reason a mortgage costs less than a credit card: collateral changes the math.
The structure also keeps the debt tied to the thing it bought, rather than tying up a general line of credit you might need for payroll or inventory. You finance the machine with the machine, and your other borrowing capacity stays free. For a wider view of how this product sits alongside term loans, lines of credit, and factoring, see business financing options every owner should know.
Loans vs. Leases: The Real Difference
Equipment can be financed two ways — a loan or a lease — and the difference comes down to who owns the asset and what happens at the end.
With an equipment loan, you own the equipment from day one. The lender holds a lien until you finish paying, then the lien releases and the asset is fully yours. You take on the risk and reward of ownership, including whatever resale value remains.
With an equipment lease, a leasing company owns the equipment and you pay to use it. Leases come in two common flavors:
- $1 buyout lease (capital lease). Functions much like a loan. You make fixed payments over the term and buy the equipment outright for $1 at the end. You are effectively financing the purchase, and you generally carry the asset on your books like an owner.
- Fair market value (FMV) lease. Lower payments, but at the end you either return the equipment, renew, or buy it at its then-current market price. This fits equipment that becomes obsolete quickly, like some technology, where you would rather upgrade than own an aging asset.
In plain terms: choose a loan or a $1 buyout lease when you want to own something durable that holds its value, like a truck or a commercial oven. Consider an FMV lease when the equipment ages out fast and ownership is not the point. Because leases carry tax and balance-sheet consequences that vary by how they are structured, the ownership question is worth running past your accountant before you sign.
What Counts as Equipment
The category is broader than most owners assume. If it is a tangible asset your business uses to operate, it can usually be financed. Common examples:
- Vehicles: delivery vans, box trucks, semi-trucks, service vehicles.
- Machinery: manufacturing lines, CNC machines, construction and heavy equipment.
- Kitchen and restaurant equipment: ovens, walk-in coolers, fryers, espresso machines.
- Medical and dental devices: imaging machines, dental chairs, lab equipment.
- Technology: computers, servers, point-of-sale systems, and in some cases the software that runs on them.
Software and technology are the fuzzy edge. Hardware is almost always financeable; software sometimes is, particularly when it is bundled with hardware or is essential to operating the equipment. Contractors and tradespeople in particular lean on this product heavily — the specifics for that world are covered in construction business loans.
Typical Structures, New and Used
A few conventions hold across most equipment financing.
Up to 100% financing is common. Because the asset secures the loan, lenders will often finance the full purchase price, sometimes including soft costs like delivery and installation. Some deals still ask for a modest down payment, especially for weaker credit or specialized gear.
Terms are matched to useful life. The repayment term usually tracks how long the equipment will earn — three to seven years is typical. A lender will not write a ten-year term on a computer that will be obsolete in three, because the collateral would be worthless long before the loan is paid off. Matching the term to the life of the asset is also just good discipline: you avoid paying for something after it has stopped producing.
Payments are fixed. Most equipment loans carry a fixed rate and a level monthly payment, which makes budgeting straightforward.
New vs. used changes the terms. New equipment usually earns the best rates and the longest terms, because its value and remaining life are predictable. Used equipment is very much financeable — it is a mainstay for trucking and construction — but expect somewhat higher rates, shorter terms, and closer scrutiny of the equipment's age, hours, and condition. Very old or specialized used equipment can be harder to finance simply because it is harder for the lender to resell.
A Word on Tax Treatment
Financed equipment often comes with meaningful tax advantages. Provisions such as Section 179 expensing and bonus depreciation can, in general terms, let a business deduct some or all of the cost of qualifying equipment in the year it is placed in service, rather than spreading the deduction over many years. That can materially lower the after-tax cost of a purchase.
The rules, dollar limits, and phase-outs change from year to year and depend heavily on your specific situation, so treat this as a concept to raise, not advice to act on. Talk to your tax professional before you count on any deduction. The point worth knowing going in is that the sticker price and the true after-tax cost of financed equipment can be quite different, and that difference belongs in your decision.
How to Qualify
Equipment financing has a distinctive underwriting angle: the equipment itself is a major part of the decision, sometimes as important as your credit. Lenders weigh several things:
- The equipment's value and resale market. Standard, in-demand equipment with a liquid resale market is easier to finance than niche gear, because the lender's fallback is stronger.
- Credit. It matters, but the collateral softens the bar. Owners who would struggle to get an unsecured loan can often qualify for equipment financing at a reasonable rate. Where you land still shapes your pricing, as laid out in the lowest-rate business loans guide.
- Time in business and revenue. Stronger numbers help, but this is one of the more startup-friendly products precisely because the asset backs the loan.
That last point matters for new businesses. Because the equipment secures the deal, startups can often qualify for equipment financing when other loans are out of reach — a path covered in best business loans for startups. It is one of the few ways an early-stage business can access a large, specific purchase without a long track record.
Worked Example: Financing an $80,000 Truck
Suppose you are buying a $80,000 truck and financing the full amount over five years. Your rate depends on your credit and the truck's condition. Here is how the same purchase plays out across three rate tiers.
| Rate (5-year term) | Monthly payment | Total interest | Total paid |
|---|---|---|---|
| ~7% (strong credit, new) | ~$1,584 | ~$15,000 | ~$95,000 |
| ~11% (mid-tier) | ~$1,739 | ~$24,300 | ~$104,300 |
| ~18% (weaker credit / older unit) | ~$2,031 | ~$41,900 | ~$121,900 |
The truck is the same in all three rows; the only variable is your rate. Moving from the 18% tier to the 7% tier saves nearly $27,000 over the life of the loan — which is why cleaning up your credit before a big equipment purchase pays for itself many times over. The math is simple: whether any of these payments is worth it depends on what the truck earns you. If it reliably nets $4,000 a month on a new route, even the $2,031 payment clears comfortably; if it sits idle, no rate is cheap.
When Equipment Financing Beats a General Loan — and When It Doesn't
Equipment financing is usually the right tool when you have a defined asset purchase. It typically beats a general-purpose loan or drawing on a line of credit because the collateral earns you a lower rate, preserves your other borrowing capacity, and matches the repayment term to the asset's earning life.
It is the wrong tool when the money is not going toward equipment. You cannot use it for payroll, marketing, rent, or general cash flow — that is what working capital products and lines of credit are for. It is also a poor fit when you genuinely need the flexibility to spend on shifting needs rather than one fixed asset, or when the equipment ages so fast that a short-term rental or FMV lease makes more sense than owning. And if your credit is strong enough to get an unsecured loan at a comparable rate and you would rather not pledge the asset, that is a legitimate reason to skip it — though for most owners, the collateral discount is worth more than the flexibility of leaving the equipment unpledged.
Frequently Asked Questions
What credit score do I need for equipment financing?
Requirements are generally softer than for unsecured loans because the equipment serves as collateral. Many lenders work with mid-600s credit, and some go lower for standard, easily resold equipment. Your score still influences your rate and down payment, but the asset does a lot of the work, which is why this product is more accessible than a comparable unsecured loan.
Should I lease or finance equipment?
Finance or use a $1 buyout lease when you want to own durable equipment that holds its value, like a truck or commercial oven. Consider a fair market value lease for equipment that becomes obsolete quickly, such as some technology, where lower payments and the option to upgrade matter more than ownership. Because the tax and accounting treatment differs, confirm the choice with your accountant.
Can I finance used equipment?
Yes. Used equipment is commonly financed, especially in trucking and construction. Expect somewhat higher rates and shorter terms than new equipment, and lenders will look closely at the age, hours, and condition, since older or specialized gear is harder for them to resell if they ever need to.
Can a startup get equipment financing?
Often yes, more easily than other loans. Because the equipment secures the financing, lenders can approve newer businesses that lack a long track record. It is one of the more realistic ways for an early-stage business to make a major, specific purchase, though rates and down payment requirements are usually higher until you build history.
Where iAdvance Now Fits
iAdvance Now is a small-business funding marketplace and broker — not a bank or direct lender. With 80+ lending partners, one application and a soft credit pull (no score impact) can surface equipment financing options across new and used purchases, so you can compare rates and terms in one place. Funding ranges from $10,000 to $5,000,000, and some products fund in as little as 24 hours. When you are ready to price out a specific purchase, you can start an application and see what you qualify for.