Equipment Financing 101: Everything You Need to Know

Equipment financing is one of the smartest ways for small businesses to purchase or lease expensive tools, vehicles, or machinery without draining cash flow. Whether you're launching a startup or scaling operations, this financing method helps you access essential gear while preserving working capital.

In this guide, we’ll break down everything you need to know about equipment financing—how it works, the pros and cons, the types available, and how to get approved.

What Is Equipment Financing?

Equipment financing refers to a loan or lease used to purchase business-related equipment. This can include:

• Construction machinery

• Commercial vehicles

• Medical or dental devices

• Office technology (computers, printers)

• Restaurant appliances

• Manufacturing tools

Instead of paying the full price upfront, you spread the cost over time, typically through fixed monthly payments.

Why Equipment Financing Matters

For many businesses, equipment is a necessity—not a luxury. But purchasing it outright can cost tens of thousands of dollars. Equipment financing offers a sustainable solution, allowing you to:

• Maintain cash reserves

• Start or expand operations faster

• Keep up with technological changes

• Get tax benefits through Section 179 deductions

Learn more about Section 179 from the IRS. 

How Does Equipment Financing Work?

Here's a basic overview of how equipment financing typically works:

1. Apply for financing through a lender or leasing company.

2. Get approved based on your credit score, business history, and equipment value.

3. Receive funds or equipment directly.

4. Make fixed monthly payments over a defined term.

5. Own the equipment at the end of the loan—or return it if leased.

Types of Equipment Financing

1. Equipment Loans

These are traditional loans where the equipment serves as collateral. Once fully paid, you own the equipment.

Best for: Businesses wanting to build assets long-term.

2. Equipment Leasing

You rent equipment for a period, typically with lower monthly payments.

Best for: Businesses with short-term needs or who want to upgrade frequently.

3. Operating Lease

Payments are lower, and the item is returned at lease-end. This lease is considered an expense, not a debt.

4. Capital Lease

Higher payments, but you own the equipment after the lease. Treated like a loan for accounting purposes.

Benefits of Equipment Financing

• ✅ Preserves working capital

• ✅ Fast approval and funding

• ✅ Flexible terms (1–7 years)

• ✅ Equipment acts as collateral

• ✅ Potential tax write-offs

Equipment Financing vs. Other Business Loans

Who Should Consider Equipment Financing?

Equipment financing is ideal for:

• Startups with limited cash

• Growing companies upgrading tech or machinery

• Seasonal businesses needing temporary gear

• Industries like manufacturing, logistics, healthcare, or construction

How to Qualify for Equipment Financing

Most lenders consider:

• Personal and business credit score

• Time in business (usually 6+ months)

• Annual revenue (commonly $50K–$100K minimum)

• Value and type of equipment

• Down payment (some lenders require 5–20%)

💡 Tip: Boost your approval odds by preparing financial statements and getting vendor quotes ahead of time.

Pros and Cons of Equipment Financing

✅ Pros:

• Doesn’t require large upfront payment

• Protects cash flow

• Easier approval than unsecured loans

• You build equity in equipment

❌ Cons:

• Interest adds to total cost

• Depreciating assets may lose value

• Defaults can lead to repossession

• Leasing doesn't build equity

7 Simple Steps to Get Equipment Financing (Featured Snippet Section)

1. Identify equipment needs

2. Get a vendor quote

3. Compare lenders or leasing firms

4. Prepare documents

5. Apply and get approved

6. Sign agreement

7. Receive equipment

Top Lenders That Offer Equipment Financing

Here are a few reliable and well-established lenders known for offering equipment financing:

• Bank of America – Commercial equipment loans

• Balboa Capital – Flexible lease and loan options for SMBs

• Crest Capital – Competitive rates and fast approvals

All links open in a new tab.

What Documents Will You Need?

Typically, lenders ask for:

• Government-issued ID

• Business license

• Recent bank statements

• Tax returns (1–2 years)

• Profit & Loss statements

• Equipment quote or invoice

Tax Benefits of Equipment Financing

Thanks to IRS Section 179, businesses may deduct the full purchase price of qualified equipment in the year it's placed in service. This can significantly reduce your taxable income.

Use the Section 179 Calculator here. (opens in new tab)

Should You Lease or Buy?

Frequently Asked Questions (FAQs)

What’s the minimum credit score needed?

Most lenders require a 600–650 credit score, but some work with lower scores if revenue is strong.

Can I finance used equipment?

Yes, many lenders allow used equipment financing, though terms might vary.

Are there fees involved?

Yes. Expect origination fees (1–5%), documentation fees, and possibly early repayment penalties.

Is a personal guarantee required?

Often, especially for new businesses or lower credit scores.

Best Industries for Equipment Financing

These industries commonly use equipment financing:

• Construction & Contracting

• Transportation & Logistics

• Manufacturing

• Healthcare

• Food & Beverage

• Farming & Agriculture

Each has high equipment needs and benefits from spreading costs over time.

Summary: Why Equipment Financing Is a Smart Move

Equipment financing helps business owners afford essential tools without emptying their cash reserves. With flexible loan or lease options, tax benefits, and fast approval times, it’s one of the best funding strategies for growth-focused companies. Whether you're scaling up or just starting out, equipment financing could be the key to unlocking new opportunities.

Take the Next Step

Ready to finance your next piece of equipment?
Compare quotes from top lenders, explore leasing options, and find the best fit for your business goals today. Don’t let a lack of equipment hold your business back—start growing smarter.