Equipment Financing for Small Business Owners: Loans, Rates & Lenders

Small businesses need heavy machinery, delivery trucks, medical devices, restaurant equipment, and production tools to operate—but most can't afford to buy these assets outright. Equipment financing solves that problem by spreading the purchase price over monthly installments, using the equipment itself as collateral. In this guide, you'll learn how equipment loans work, how much they cost, which lenders offer the best terms, and how to avoid the most expensive mistakes.

Key Takeaways

• Equipment loans let you borrow 80–100% of the equipment's purchase price; the gear serves as collateral, which typically lowers rates compared to unsecured business loans.
• Rates range from 6% to 30%+ APR depending on your credit, time in business, and the type of equipment. Newer, essential machinery qualifies for the lowest rates.
• Repayment terms run 1–7 years, matching the useful life of the equipment. Loans for trucks or tractors often stretch to 84 months; computers or restaurant gear may cap at 36 months.
• Soft-dollar costs include origination fees (1–5%), documentation fees, and occasional balloon payments or seasonal payment structures for farms and construction firms.
• Top lenders include traditional banks, online platforms like OnDeck and Bluevine, manufacturer captives (John Deere Financial, Caterpillar Financial), and SBA-backed 7(a) or 504 programs.

What is equipment financing and how does it work?

Equipment financing is a secured loan or lease that lets a business acquire machinery, vehicles, or other fixed assets by using those assets as collateral. Because the lender can repossess the equipment if you default, interest rates are typically 3–10 percentage points lower than unsecured business term loans. You keep ownership from day one (in a loan structure) or gain it at lease-end (in a capital lease or lease-to-own arrangement).

Lenders advance 80–100% of the equipment's invoice or appraised value. You make fixed monthly payments—principal plus interest—over a term that mirrors the equipment's expected lifespan. For example, a CNC milling machine with a 10-year useful life may carry a 60- or 84-month loan, while point-of-sale hardware with a 3-year obsolescence window caps at 36 months.

Loan versus lease

• Equipment loan: You own the asset immediately; it appears on your balance sheet. You can claim Section 179 or bonus depreciation in year one. At the end of the term, the equipment is yours free and clear.
• Equipment lease (capital or operating): You use the equipment but the lessor retains title during the lease. Monthly payments may be lower because you're only financing the depreciation, not the full purchase price. At maturity, you can buy out the residual, return it, or upgrade.

Most small businesses choose a loan when they plan to use the equipment for its full life—construction equipment, delivery vans, HVAC tools. Leasing makes sense for technology that will be outdated in three years (computers, medical imaging devices) or when you want to preserve the Section 179 deduction on the lessor's side in exchange for a lower payment.

Who offers equipment financing?

The market splits into five channels, each with different underwriting speed, rate bands, and collateral requirements:

Traditional banks (Chase, Bank of America, PNC) offer the lowest rates but demand two years of tax returns, strong cash flow, and a personal guarantee. Online lenders approve within 24–48 hours but charge double-digit APRs and may add a 2–5% origination fee. Manufacturer captives give preferential rates on new equipment purchased through their dealer network—John Deere Financial frequently runs 0% promotions for farmers with excellent credit. SBA loans guarantee up to 85% of the principal, which lowers the bank's risk and your rate, but underwriting takes four to eight weeks. Leasing companies specialize in transactions under $500k and will often approve borrowers with FICO scores in the 640–680 range if the equipment holds strong resale value.

What credit score and financials do you need?

Most equipment lenders set a minimum FICO score of 600–680, but your actual rate hinges on a tier system:

• Tier 1 (720+): 6–10% APR, 100% financing, minimal documentation.
• Tier 2 (680–719): 10–15% APR, 90% financing, business bank statements required.
• Tier 3 (640–679): 15–20% APR, 80% financing, larger down payment, higher fees.
• Tier 4 (600–639): 20–30% APR, 70–80% financing, may require additional collateral or a co-signer.

Beyond credit score, underwriters review:

• Time in business: Most want at least 12 months of operations; SBA programs prefer 24 months.
• Revenue: Online lenders typically require $100k–$250k in annual revenue; banks want $500k+.
• Debt-service coverage ratio (DSCR): Your net operating income should exceed 1.25× your total debt payments. A DSCR below 1.0 means you're spending more on debt than you earn, which will trigger a decline.
• Equipment type and age: Lenders prefer essential, revenue-generating assets with strong resale markets. A 2025 Freightliner semi-truck will finance at 8%; a used food cart may struggle to get approved at any rate.

How much does equipment financing cost? A real-world example

Consider a landscaping company that needs a $50,000 compact excavator. The owner has a 690 FICO, 18 months in business, and $300,000 in trailing-twelve-month revenue.

• Lender: Online equipment finance platform (Balboa Capital, Currency, or similar).
• Amount financed: $50,000 (100% of invoice; dealer offers a cash discount, but owner preserves working capital).
• APR: 13.5% (Tier 2 pricing).
• Term: 60 months.
• Origination fee: 2% ($1,000), rolled into the loan balance → $51,000 total financed.

Monthly payment: Using standard amortization, the payment is approximately $1,159 per month. Over 60 months, total interest paid is roughly $18,540, and the all-in cost is $69,540.

If the same borrower had qualified for an SBA 7(a) loan at 9.5% APR over 84 months, the payment would drop to about $710 per month, and total interest over seven years would be around $9,240—a savings of nearly $9,300. The trade-off: SBA underwriting takes six weeks versus three days for the online lender.

Fee checklist

• Origination or documentation fee: 1–5% of loan amount.
• UCC-1 filing fee: $50–$200 (lender files a lien on the equipment).
• Appraisal or inspection fee: $200–$500 for used or specialized machinery.
• Prepayment penalty: Rare on equipment loans; most allow early payoff without penalty.
• Balloon payment: Some deals structure 24–36 months of payments with a final lump sum equal to 20–30% of the original balance. This lowers the monthly outlay but requires refinancing or a cash infusion at maturity.

Equipment loan versus business line of credit or term loan

Bottom line: If you know you need a specific piece of machinery and can identify the vendor and invoice, an equipment loan will almost always cost less than drawing on an unsecured line or term loan—because the collateral reduces the lender's risk.

SBA equipment financing: 7(a) and 504 programs

The U.S. Small Business Administration backs two loan programs that often deliver the lowest rates for equipment purchases:

SBA 7(a)

• Maximum: $5 million.
• Down payment: Typically 10% for equipment (the SBA guarantees 85% on loans ≤$150k, 75% on loans >$150k).
• Rate: Prime + 2.25%–2.75% (as of early 2025, prime is around 7.5%, so expect 9.75–10.25% APR).
• Term: Up to 10 years for equipment, 25 years for real estate.
• Best for: Established businesses (2+ years) buying trucks, tractors, manufacturing lines, or medical equipment.

SBA 504

• Maximum: $5.5 million per project (up to $6.5 million for manufacturing or energy projects).
• Structure: Borrower puts down 10%, a bank finances 50%, and a Certified Development Company (CDC) finances 40% through an SBA-backed debenture.
• Rate: The CDC portion carries a fixed rate tied to the 5- or 10-year Treasury, often in the 5–6% range; the bank portion is negotiated but typically 7–9%.
• Term: 10 or 20 years.
• Best for: Large equipment purchases tied to real-estate projects—buying a building and outfitting it with production machinery, or a dental practice buying a new office plus chairs and imaging equipment.

Both programs require substantial documentation (tax returns, financial statements, personal financial statement, business plan) and take four to eight weeks to close. Work with an SBA Preferred Lender (Wells Fargo, Live Oak Bank, Byline Bank) to speed the process.

Common mistakes to avoid

1. Financing outdated or specialized equipment with weak resale value

Lenders will advance 100% on a new John Deere tractor but only 60–70% on a custom CNC machine built in 1998. If the equipment is obsolete or highly specialized, expect higher rates, larger down payments, or outright declines. Stick to assets with broad secondary markets.

1. Ignoring the total cost of ownership

A $40,000 delivery van financed at 18% over 48 months costs $1,141/month—$54,768 total. Add insurance ($200/month), maintenance ($150/month), and fuel ($400/month), and your all-in monthly outlay is $1,891. Run a cash-flow projection before you sign; equipment loans have failed many businesses that forgot to budget for operating expenses.

1. Skipping manufacturer promotions

John Deere Financial, Caterpillar Financial, Toyota Financial Services, and Ford Credit routinely offer 0% or 1.9% APR for 24–36 months on new equipment. Always check the manufacturer's website or ask the dealer before applying to a third-party lender.

1. Choosing a lease when you plan to keep the equipment long-term

Leasing a $30,000 excavator over 36 months at $950/month may sound cheaper than a loan at $1,100/month—but at lease-end you either return the equipment or pay a $9,000 buyout. If you intend to use that excavator for 10 years, a loan is almost always cheaper over the asset's life.

1. Not reading the UCC-1 filing and cross-default clauses

The lender will file a UCC-1 lien against the equipment, which appears on your business credit report and can block future financing until the lien is released. Some agreements include cross-default language: if you miss a payment on any business debt, the equipment lender can declare you in default and repossess the machinery. Read the fine print.

1. Taking the first offer without shopping

Rates vary by 5–10 percentage points across lenders for the same borrower profile. Request quotes from your bank, two online platforms (Balboa Capital, National Funding, Credibly), and the manufacturer captive. Use the lowest offer as leverage to negotiate better terms elsewhere.

How to apply for an equipment loan

1. Identify the equipment: Get a firm quote or invoice from the dealer. Lenders need the make, model, year, serial number, and purchase price.
2. Gather financials: Personal and business tax returns (past 2 years), profit-and-loss statement, balance sheet, business bank statements (3–6 months).
3. Check your credit: Pull your FICO score (FICO SBSS or Experian Business) to know which tier you'll land in.
4. Prequalify with 2–3 lenders: Most offer a soft-pull prequalification that shows rate and term without dinging your credit.
5. Submit a full application: The lender will pull your personal credit (hard inquiry) and may order a business credit report from Dun & Bradstreet or Experian.
6. Receive approval and sign documents: Online lenders fund in 1–3 days; banks take 1–4 weeks. Funds are sent directly to the equipment vendor or dealer.
7. File UCC-1 and make payments: The lender files a lien; you begin monthly payments. At maturity, the lender releases the lien and you own the equipment outright.

Next steps: Compare rates and calculate your payment

Equipment financing can cut your upfront cash outlay by 80–100%, preserve working capital for payroll and inventory, and unlock tax deductions through Section 179 or bonus depreciation. Rates and terms vary widely—shop at least three lenders, prioritize low APR over fast approval if your timeline allows, and always model the total cost of ownership before you commit.

Ready to see what you qualify for? Use our business loan calculator to estimate monthly payments at different rates and terms, or read our guide to SBA 7(a) loans to learn how government backing can save you thousands in interest. Prequalification takes two minutes and won't affect your credit score—get started today.

Related guides

• Small Business Loans 2026: A Complete Guide to Funding Your Company
• SBA 7(a) vs SBA 504: Which Fits Your Business
• When Refinancing a Personal Loan Pays Off
• Soft Pull vs Hard Pull: What Each Does to Your Credit
• Origination Fees: Why They Matter More Than the Rate

Run the numbers

• Business Loan Calculator