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How Equipment Financing Works: A Plain-English Guide
Equipment financing is a loan (or lease) used to buy a specific business machine, where the machine itself serves as the collateral. That single fact — the equipment secures the debt — is what makes this the cheapest borrowing most small businesses can access, and it's the thread that runs through every guide on this site.
Why 'the machine is collateral' matters so much
When a loan is secured by a valuable, resellable asset, the lender's risk drops. If a borrower stops paying, the lender repossesses and sells the equipment to recover most of the balance. Lower risk means lower rates, easier approvals, and willingness to lend to newer businesses — because the lender is betting partly on you and partly on the machine.
This is why a startup can often finance a $90,000 CNC machine or a $120,000 vacuum truck when it couldn't get an unsecured loan for a fraction of that. The collateral does the heavy lifting. It's also why paying merchant-cash-advance or unsecured-loan rates to buy a titled truck is almost always a mistake — you'd be throwing away the discount the collateral earns you.
The core rule: never pay unsecured rates for a secured purchase. If a machine has real resale value, it should be financed as equipment — not with working-capital money, and never with a merchant cash advance.
Loan or lease?
An equipment loan (or Equipment Finance Agreement) means you own the machine and build equity as you pay. A lease means you use the machine and either return it, renew, or buy it out at the end. For equipment you'll keep for years — most trucks, most production machinery — a loan or a $1-buyout lease almost always wins, because you build ownership and can usually still take the tax deduction. Leasing earns its place with technology that ages out fast. Our dedicated loan-vs-lease guide covers the decision in depth.
What rates and terms look like
Equipment loan APRs typically run roughly 7–15% for established businesses with good credit, and 15–30% for startups or challenged credit. Terms usually run 24–84 months, matched to the equipment's useful life — longer terms for machines that last (laundromat equipment, dental chairs), shorter for machines that wear (high-hour trucks, cardio equipment).
The application process
- Small and mid-size deals (often up to $250,000) are 'application-only' — a one-page application, a personal-credit check, and a decision in hours to days. No tax returns.
- Larger deals require financials: business tax returns, bank statements, and sometimes a description of the equipment and how it generates revenue.
- The lender verifies the equipment (invoice, sometimes photos or an inspection), then funds — usually by paying the seller directly.
- You start payments roughly 30 days later. Some deals offer deferred or seasonal payment structures if you ask.
Throughout the process, the single most valuable thing you can do is get more than one quote — a dealer or manufacturer offer against an independent lender. That comparison alone routinely saves 1–3 points of APR.
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Get matched with equipment lenders → Browse equipment guides →Frequently asked questions
Is equipment financing the same as a business loan?
It's a specific type. A general business loan can be spent on anything and is often unsecured (higher rate). Equipment financing is tied to a specific machine that serves as collateral, which is why it's usually cheaper and easier to get for the same borrower.
Can I finance used equipment?
Yes — most lenders finance used equipment, though very old machines get shorter terms and larger down payments. Dealer-sold and certified-used equipment finances more easily than private-party or auction purchases.
How much down payment do I need?
Established businesses with good credit often put 0–15% down (0% is reserved for the best-qualified); startups and challenged credit typically 20–30%. Strong collateral (trucks, CNC, medical equipment) reduces the down payment lenders require.