A commercial oven costs $15,000. A CNC machine runs $50,000. A fleet vehicle is $45,000. Construction equipment can hit seven figures. For most small businesses, paying cash for essential equipment isn't realistic — but operating without that equipment isn't an option either.

Equipment financing bridges this gap, letting you acquire the tools your business needs while preserving working capital. According to the Equipment Leasing and Finance Association, businesses financed over $1 trillion in equipment in 2025. Here's how to access that capital for your business.

Understanding Your Equipment Financing Options

Not all equipment financing works the same way. The right structure depends on your cash flow, tax situation, and how long you'll use the equipment.

Equipment Loans

A traditional equipment loan works like a car loan: you borrow money to purchase equipment, make monthly payments over a set term, and own the equipment outright when the loan is paid off.

Key characteristics:

Loan amount: Typically 80-100% of equipment cost
Terms: 2-7 years, usually matching equipment useful life
Interest rates: 6-20% depending on creditworthiness and lender
Ownership: You own the equipment from day one
Collateral: The equipment itself secures the loan

Best for: Equipment with long useful life that you'll use for years, situations where ownership and depreciation benefits matter.

Equipment Leases

Leasing means you pay for the right to use equipment without owning it. At lease end, you typically return the equipment, purchase it at fair market value, or extend the lease.

Types of leases:

Operating lease: Lower payments, return equipment at end, equipment stays off your balance sheet. Best for equipment that becomes obsolete quickly.

Capital lease (finance lease): Higher payments, ownership transfers at end, equipment goes on your balance sheet. Essentially financing with lease structure.

$1 buyout lease: You pay a premium during the lease term and purchase the equipment for $1 at the end. Functions like a loan but structured as a lease.

Best for: Technology that updates frequently, seasonal businesses, companies wanting to preserve credit lines, situations where off-balance-sheet treatment matters.

SBA Loans for Equipment

The Small Business Administration guarantees loans made by approved lenders, reducing lender risk and enabling better terms for borrowers.

SBA 7(a) loans: Up to $5 million for equipment and other business purposes. Terms up to 10 years for equipment. Rates capped at Prime + 2.75% for loans over $50,000.

SBA 504 loans: For major equipment and real estate. Requires 10% down payment. Fixed rates, terms up to 20 years. Minimum project size typically $125,000.

Best for: Established businesses with strong financials who can wait for longer approval processes in exchange for better rates and terms.

What Lenders Look For

Understanding lender criteria helps you prepare a stronger application and target appropriate financing sources.

Credit Requirements

Personal credit: Most lenders check personal credit for small business owners. Scores above 700 get the best rates. Scores 650-700 qualify with most lenders. Below 650, expect higher rates or alternative lenders.

Business credit: Established businesses with Dun & Bradstreet scores, Experian business scores, or trade references may qualify based on business credit alone.

Time in Business

Under 1 year: Limited options. May need personal guarantees, higher rates, or equipment-only lenders.
1-2 years: More options available. Still expect personal guarantees.
2+ years: Full range of options. May qualify without personal guarantee for strong businesses.

Revenue and Cash Flow

Lenders want to see that your business generates enough cash to make payments comfortably. The debt service coverage ratio (DSCR) measures this:

DSCR = Net Operating Income / Total Debt Payments

Most lenders want DSCR of 1.25 or higher, meaning you generate $1.25 for every $1 in debt payments.

Equipment Type and Condition

The equipment itself affects financing terms:

New equipment: Easier to finance, higher advance rates (up to 100%), longer terms available.

Used equipment: Lower advance rates (50-80%), shorter terms, may require appraisal.

Specialized equipment: May be harder to finance if resale market is limited. Lenders prefer equipment they could sell if you default.

Soft costs: Some lenders finance installation, training, and shipping. Others finance equipment only.

How to Get the Best Equipment Financing Rates

Rate differences of even 2-3% translate to thousands of dollars over a loan term. Here's how to position yourself for the best rates.

Prepare Your Documentation

Having documents ready signals professionalism and speeds approval:

Business tax returns (2-3 years)
Personal tax returns (2 years)
Bank statements (3-6 months)
Profit and loss statement (year-to-date)
Balance sheet (current)
Equipment quote (detailed, from vendor)
Business plan (for startups or major purchases)

Shop Multiple Lenders

Rates vary significantly across lenders. Get quotes from:

Your existing bank (relationship may help)
Equipment manufacturer financing (often promotional rates)
Online lenders (fast approval, competitive for some profiles)
Credit unions (often lower rates for members)
SBA lenders (best rates but longer process)

Comparing at least 3-5 quotes typically saves 1-3% on rates.

Consider Timing

Interest rates fluctuate with economic conditions. In rising rate environments, locking in fixed rates protects you. Some lenders offer rate locks during the application process.

End of quarter and end of year can bring promotional rates as lenders push to meet volume targets.

Negotiate Terms

Everything is negotiable:

Interest rate: Especially if you have competing offers
Down payment: Some lenders flex on this
Prepayment penalties: Push for no penalty or reduced penalty
Fees: Origination fees, documentation fees, and closing costs vary
Payment timing: Monthly vs. quarterly, payment date flexibility

Improve Your Profile Before Applying

If you're not in a rush:

Pay down existing debt to improve DSCR
Build business credit with trade accounts
Increase cash reserves
Address any credit report errors
Wait until you have another quarter of strong financials

The Equipment Financing Process: Step by Step

Step 1: Define Your Equipment Needs

Before approaching lenders, know exactly what you need:

Specific equipment make, model, and specifications
New vs. used
Vendor quotes (get multiple)
Installation and training costs
How the equipment will generate revenue or reduce costs

Step 2: Assess Your Financing Capacity

Calculate how much monthly payment your cash flow can support. A good rule: equipment payments shouldn't exceed 10-15% of monthly gross revenue for most businesses.

Step 3: Gather Documentation

Collect everything listed above. Missing documents are the #1 cause of application delays.

Step 4: Apply to Multiple Lenders

Submit applications to 3-5 lenders within a 14-day window. Credit inquiries within this period typically count as a single inquiry for scoring purposes.

Step 5: Compare Offers

Look beyond the interest rate:

Total cost of financing (all fees included)
Monthly payment amount
Term length
Prepayment flexibility
Personal guarantee requirements
Collateral requirements beyond the equipment

Step 6: Close and Fund

Once you accept an offer:

Sign loan documents
Provide any final documentation
Lender funds the equipment purchase (often directly to vendor)
You take delivery of equipment

Timeline: 2-5 days for online lenders, 2-4 weeks for banks, 30-90 days for SBA.

Tax Implications of Equipment Financing

Equipment financing offers significant tax benefits. Consult your accountant, but here's the overview:

Section 179 Deduction

Allows businesses to deduct the full purchase price of qualifying equipment in the year of purchase, rather than depreciating over time.

2026 limits: Up to $1.16 million deduction, with phase-out beginning at $2.89 million in equipment purchases.

Applies to: Purchased equipment (loans and capital leases), not operating leases.

Bonus Depreciation

Allows 60% first-year depreciation on new equipment in 2026 (phasing down from 100% in 2022).

Applies to: New and used equipment, no dollar limit.

Interest Deduction

Interest paid on equipment loans is generally tax-deductible as a business expense.

Lease Payments

Operating lease payments are typically fully deductible as a business expense in the year paid.

Key Takeaways

Equipment loans give you ownership and depreciation benefits. Leases offer flexibility and potentially lower payments.
Credit score, time in business, and cash flow are the primary qualification factors. Equipment serves as collateral, making requirements often lower than unsecured loans.
Shop multiple lenders — rate differences of 2-3% cost thousands over the loan term.
Prepare documentation in advance to speed approval and signal professionalism.
Tax benefits (Section 179, bonus depreciation) can significantly reduce the effective cost of equipment financing.
Match financing term to equipment life — don't pay for equipment longer than you'll use it.

Frequently Asked Questions

What credit score do I need for equipment financing?

Most traditional lenders require 650+ for competitive rates. Alternative lenders may approve scores as low as 550 but charge higher rates (often 15-25%). Because equipment serves as collateral, credit requirements are often lower than unsecured loans. Strong business financials can sometimes offset weaker personal credit.

Should I lease or finance equipment?

Finance if you'll use the equipment long-term and want to build equity. Lease if you need flexibility, want lower payments, or the equipment will become obsolete quickly. Tax implications differ significantly — Section 179 applies to purchases but not operating leases. Consult your accountant for your specific situation.

How much can I borrow for equipment?

Typically 80-100% of equipment value for new equipment, 50-80% for used. Lenders may finance up to $5 million for established businesses with strong financials. Startups usually qualify for smaller amounts ($50,000-250,000) with personal guarantees required.

How long does equipment financing approval take?

Online lenders: 24-48 hours. Traditional banks: 2-4 weeks. SBA loans: 30-90 days. Having documentation ready (financials, equipment quotes, business plan) speeds the process significantly. Pre-qualification with some lenders takes just minutes.

Can I finance used equipment?

Yes, but terms are typically less favorable than new equipment. Expect 50-80% advance rates (vs. up to 100% for new), shorter terms, and potentially higher rates. Some lenders specialize in used equipment. An appraisal may be required for high-value used equipment.