When your business needs capital for new machinery, vehicles, or technology, two financing options consistently rise to the top: equipment financing and term loans. Both can get you the funds you need, but they work very differently and carry distinct advantages depending on your situation. Choosing the wrong one can cost you thousands in unnecessary interest, restrict your cash flow, or leave you locked into terms that do not align with how your business actually operates.
This guide breaks down equipment financing vs. term loans in full detail so you can make a confident, informed decision. Whether you are a contractor eyeing a new excavator, a restaurant owner replacing kitchen equipment, or a medical practice upgrading diagnostic technology, the right financing structure makes a measurable difference to your bottom line.
In This Article
Equipment financing is a loan or credit facility specifically designed to fund the purchase of business equipment. The equipment itself serves as collateral, which means the lender has a security interest in the asset until the loan is repaid in full. This structure reduces lender risk, which in turn typically lowers the interest rates and qualification requirements compared to unsecured lending products.
Equipment financing is widely available from banks, credit unions, specialty equipment lenders, and online lenders. Loan amounts generally range from $5,000 to several million dollars, and repayment terms align with the expected useful life of the equipment - typically 3 to 7 years for most machinery and technology, and up to 10 years for heavy industrial or construction equipment.
The core mechanics are straightforward: you receive funding to purchase the equipment, make fixed monthly payments over the term, and own the asset outright once the loan is paid off. Some equipment financing arrangements also include options to bundle in soft costs like installation, training, and extended warranties.
Key Stat: According to the Equipment Leasing and Finance Association (ELFA), approximately 80% of U.S. businesses use some form of financing to acquire equipment, making it one of the most common forms of business lending in the country.
A term loan is a lump-sum loan that is repaid in fixed installments over a set period - the "term." Term loans are general-purpose financing tools, meaning funds can be used for virtually any business expense: buying equipment, hiring staff, funding marketing campaigns, covering operating costs, purchasing inventory, or refinancing existing debt.
Term loans come in two primary structures. Short-term loans typically run 3 to 18 months and are common for working capital needs, while long-term loans extend from 2 to 10 years (or longer for SBA loans) and are better suited for major capital expenditures and growth investments. Rates vary considerably depending on loan term, lender type, borrower creditworthiness, and whether the loan is secured or unsecured.
Unlike equipment financing, term loans are not tied to a specific asset as collateral. A lender may require a blanket lien on business assets, a personal guarantee, or both - but the loan itself is not specifically structured around what the funds will purchase. This flexibility is a key differentiator when your needs extend beyond a single equipment purchase.
Both products can fund equipment purchases, but the differences between them go well beyond interest rates. Understanding these distinctions helps you match the right tool to your specific situation.
| Feature | Equipment Financing | Term Loan |
|---|---|---|
| Use of Funds | Equipment purchases only | Any business purpose |
| Collateral | The equipment itself | Business assets, personal guarantee, or both |
| Typical Rates | 6% - 30% APR | 7% - 50%+ APR (varies widely) |
| Credit Requirements | Often 600+ (equipment as security helps) | Varies: 650+ for bank loans, 500+ for alt lenders |
| Down Payment | Often 0-20%, some lenders cover 100% | Usually none (lump sum disbursed in full) |
| Loan Term | Matches equipment life (3-10 years) | Short-term (3-18 months) to long-term (2-10 years) |
| Asset Ownership | You own it after payoff | You own the purchased asset immediately |
| Section 179 Eligible | Yes | Yes (if used to purchase qualifying equipment) |
| Flexibility | Restricted to equipment costs | Unrestricted - use for anything |
| Approval Speed | Hours to days (streamlined for equipment) | Same day to several weeks (depending on lender) |
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Get Your Financing Match →Equipment financing is not a one-size-fits-all solution, but it offers a compelling combination of accessibility and structure that works well for most equipment purchases. Here is what to weigh on both sides.
By the Numbers
Equipment Financing - Key Statistics
80%
of U.S. businesses use financing to acquire equipment (ELFA)
$1.3T
in equipment and software financed annually in the U.S.
6-30%
Typical APR range for equipment loans
$1.16M
Section 179 deduction limit for 2024 qualifying equipment purchases
Term loans offer a fundamentally different structure from equipment financing. The primary appeal is flexibility - once the funds are deposited, you decide how to allocate them. That freedom comes with trade-offs.
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Apply Now →Equipment financing is typically the better choice in the following situations:
You have a single, clearly defined equipment purchase. If you need one piece of machinery - a commercial HVAC unit, a CNC machine, a delivery truck, or a dental X-ray system - and the purchase cost is straightforward, equipment financing is built precisely for this scenario. The streamlined underwriting process often means faster approvals and better rates than general-purpose term loans.
Your credit is limited or your business is younger. Equipment financing is one of the most accessible forms of business credit because the equipment itself reduces lender risk. A business with 12-18 months of history and a credit score in the mid-600s can often secure equipment financing that would be unavailable through conventional term loan channels.
You want to maximize tax efficiency. If you are purchasing qualifying equipment and can take advantage of Section 179 or bonus depreciation, equipment financing allows you to claim the full deduction in the year of purchase while spreading the actual cash outflow over the loan term. The combination of deferred cash payments and immediate tax relief can be financially powerful.
You want to preserve existing credit facilities. If you have a business line of credit or term loan capacity that you want to keep available for operational needs, using equipment financing for capital purchases keeps your general credit options open for emergencies and opportunities.
The equipment has a long, predictable useful life. Construction equipment, manufacturing machinery, medical devices, and commercial vehicles are designed to last 10-25 years. Equipment financing with a term that aligns with the asset's life creates a clean financial structure where payments end before the asset becomes obsolete.
Term loans make more sense in these situations:
You need to fund multiple items or a full project. If an equipment purchase is one component of a larger initiative - say, opening a second restaurant location that requires equipment, leasehold improvements, staffing, and working capital - a term loan funds the whole project under one agreement rather than requiring separate financing for each line item.
The equipment has a short useful life. Technology equipment such as servers, computers, and specialized software depreciates quickly. If you are buying equipment that will be functionally obsolete in 2-3 years, a shorter-term loan or even a lease arrangement often makes more financial sense than a 5-7 year equipment financing agreement.
You want complete ownership flexibility from day one. With a term loan, you take full ownership of the purchased asset immediately. There is no lien on the specific equipment, which means you can sell or modify it without notifying or seeking approval from a lender.
Your purchase includes significant soft costs. If a major portion of your capital need is for installation, integration, training, or setup services that are not "equipment" in the traditional sense, a general-purpose term loan covers all of these costs cleanly. Equipment financing lenders may exclude soft costs from what they will fund.
You are an established business with strong financials. If your business has 2+ years of history, strong revenue, and a credit score above 680, you may qualify for highly competitive term loan rates through traditional banks or SBA programs. In these cases, the rate difference between equipment financing and a term loan may be minimal, and the flexibility of a term loan makes it the better overall choice.
Pro Tip: Many businesses use both products strategically. Equipment financing for specific capital assets, and a business line of credit or term loan for operational flexibility. This multi-product approach optimizes cost, preserves capital, and builds business credit across multiple lenders simultaneously.
Crestmont Capital is the #1 business lender in the United States, offering both equipment financing and term loans through a single, streamlined process. Rather than applying separately to multiple lenders and piecing together your own comparison, our financing specialists analyze your specific situation and present the option that genuinely makes more financial sense for your business.
Our equipment financing programs offer funding from $10,000 to $5 million with same-day pre-approvals for qualifying businesses. We cover 100% of equipment costs in many cases, including soft costs such as installation and delivery fees. Terms run 1 to 10 years depending on asset type, and our rates are structured to reward businesses with strong payment histories.
Our traditional term loans are available from $25,000 to $5 million with fixed monthly payments and terms from 1 to 10 years. If your project requires funding for both equipment and other capital needs, a term loan can consolidate everything into a single monthly payment with a competitive rate that reflects the full strength of your business profile.
We also offer business lines of credit for businesses that need ongoing access to working capital alongside their equipment or term loan. For businesses looking to understand all available options, our guide to types of business loans covers every major financing product available today.
Our application process takes minutes, and most businesses receive a decision within 24 hours. There are no application fees, no obligation, and no impact on your credit score to see what you qualify for.
Abstract comparisons are helpful, but concrete examples make the decision clearer. Here are scenarios illustrating when each product is the right fit.
A regional trucking company in Ohio needs to replace two aging semi-trucks at $95,000 each. The company has two years in business, $2.2 million in annual revenue, and a credit score of 660. In this case, equipment financing is the clear winner. The trucks serve as self-collateralizing assets, the company's credit profile meets standard equipment financing thresholds, and the 7-year term aligns with the expected operating life of the vehicles. The company secures both trucks at a rate of 11% APR with a 7-year term, preserving all working capital for operations and a major route expansion it has planned for the following quarter.
A successful restaurant owner in Atlanta is opening a second location. The project requires $180,000 for commercial kitchen equipment, $40,000 for furniture and fixtures, $25,000 for initial inventory, $20,000 for renovations, and $15,000 in working capital. The total project cost is $280,000. Here, a term loan makes far more sense than equipment financing. A single 5-year term loan at 9% APR covers the complete project with one monthly payment, rather than trying to separately finance equipment while paying out of pocket for everything else.
A dental practice is replacing its X-ray system and adding a cone beam CT scanner. The combined cost is $120,000. The practice has six years of history, strong revenue, and a credit score of 740. The practice has two options: a 5-year equipment loan at 7.5% APR or a 5-year term loan at 7% APR. In this case, the rate difference is minimal, but the equipment loan has a slightly simpler approval process and no blanket lien on business assets. The practice chooses equipment financing, keeps its existing line of credit untouched, and also qualifies for a Section 179 deduction on the full $120,000 purchase.
A growing tech startup needs $60,000 in servers and $20,000 in enterprise software licenses. The software has no residual value, and the hardware will likely be replaced within 4 years. In this case, a short-term business loan or even a business line of credit makes more sense than a 7-year equipment loan on hardware that will be obsolete by year 4. The startup opts for a 3-year term loan that matches the hardware's realistic lifespan, avoiding the trap of paying on equipment that no longer serves the business.
A general contractor in Texas is adding two excavators ($250,000 total) to its fleet in December. The company's accountant identifies a $250,000 Section 179 deduction opportunity that would significantly reduce the year's tax liability - but only if the equipment is placed in service before December 31. Equipment financing through Crestmont Capital is secured in 48 hours, the equipment is delivered and placed in service by December 27, and the Section 179 deduction eliminates $62,500 in federal taxes for the year while the loan payments begin in January.
A plastics manufacturer has $175,000 in existing equipment debt spread across three separate equipment loans with different lenders at rates ranging from 12% to 18%. The company wants to refinance into a single lower-rate product and add a new injection molding machine at $85,000. A term loan at 9% refinances the existing equipment debt and funds the new machine, consolidating four payments into one at a rate that saves the company over $2,300 per month in debt service costs.
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Apply Now →Equipment financing is specifically designed for purchasing equipment, using the equipment itself as collateral. A term loan is a general-purpose lump-sum loan that can be used for any business purpose. Equipment financing typically has lower qualification thresholds because the collateral reduces lender risk, while term loans offer greater flexibility in how the funds are used.
It depends on your credit profile and the lender. Equipment financing often carries competitive rates because the equipment serves as collateral, reducing lender risk. For borrowers with strong credit (680+), well-qualified SBA term loans can match or beat equipment financing rates. For borrowers with limited credit or newer businesses, equipment financing frequently offers better rates than unsecured term loans.
Yes. Term loan funds can generally be used for any legitimate business purpose, including equipment purchases. Many businesses use term loans for equipment when the purchase is part of a larger project, when multiple equipment pieces need to be funded simultaneously, or when the flexibility of a general-purpose loan outweighs the specialized nature of equipment financing.
Generally, yes. Equipment financing has more accessible qualification criteria because the equipment serves as collateral, reducing lender risk. Businesses with limited history (12-18 months), moderate credit (600-650), or lower revenue can often secure equipment financing when they would not qualify for unsecured term loans from traditional banks. Alternative lenders also offer term loans with more flexible requirements, though typically at higher rates.
Both equipment financing and term loans appear on your business credit report as installment debt. On-time payments on either product can strengthen your business credit profile. The key difference is that equipment financing is typically reported as a secured installment loan (with collateral), while term loans may be reported as secured or unsecured depending on the lender's terms. Both contribute positively to your credit profile when managed responsibly.
Yes. Many equipment financing lenders - including Crestmont Capital - offer 100% financing for qualifying borrowers, meaning no down payment is required. The ability to get full financing depends on your credit profile, business history, and the type of equipment. Some lenders require 10-20% down for businesses with newer histories or lower credit scores.
Equipment financing covers a broad range: construction machinery, vehicles and fleets, manufacturing equipment, restaurant and food service equipment, medical and dental equipment, technology hardware, fitness equipment, agricultural machinery, printing equipment, and much more. Generally, any tangible asset with a clear market value that can be repossessed and resold qualifies as collateral for equipment financing.
Equipment financing terms typically range from 1 to 10 years, with most loans falling in the 3 to 7 year range. The term is generally structured to align with the equipment's useful life. Short-lived technology equipment might be financed over 2-3 years, while heavy construction or manufacturing equipment with a 15-25 year lifespan might support a 7-10 year loan.
If you default on an equipment financing loan, the lender has the right to repossess the collateral - the equipment itself. This is a significant operational risk for businesses that depend on that equipment to generate revenue. In addition to repossession, default typically damages your business credit score, may trigger a personal guarantee call if one was required, and can result in legal action for any deficiency balance if the equipment's resale value does not cover the outstanding loan balance.
Applying is straightforward. Visit our online application at offers.crestmontcapital.com/apply-now, complete the brief form with your business details and desired financing amount, and a Crestmont Capital specialist will review your application. Most businesses receive a pre-approval decision within 24 hours. We may request 3-6 months of business bank statements and basic business documentation, but the process is significantly faster and less paperwork-intensive than traditional bank applications.
Yes. Most equipment lenders, including Crestmont Capital, finance used equipment. The key consideration is that the equipment must have a verifiable market value and be in acceptable working condition. Lenders typically require an appraisal or dealer invoice for used equipment purchases. Rates and maximum loan amounts may differ slightly from new equipment financing due to different collateral valuations.
Both financing structures qualify for the Section 179 deduction and bonus depreciation when used to purchase qualifying equipment. The tax treatment is determined by the equipment purchase, not the loan type. Whether you finance the equipment purchase through equipment financing or a term loan, you can claim the same deductions on qualifying assets. Consult your CPA to determine which structure provides the most advantageous tax treatment for your specific situation.
Most equipment lenders look for a minimum credit score of 600-650. Some specialized lenders work with scores as low as 550, particularly for established businesses with strong revenue. Borrowers with scores of 680 and above typically access the most competitive rates. Higher credit scores, combined with strong revenue and time in business, result in lower rates and more favorable terms.
For startups, equipment financing is generally the more accessible option. Because the equipment serves as collateral, lenders can extend credit to newer businesses that would not yet qualify for unsecured term loans. Some startup-focused equipment lenders work with businesses as new as 6 months. That said, startups may face higher rates and may be required to make a down payment. Building a track record with equipment financing can also lay the foundation for qualifying for more flexible term loan products as the business matures.
Equipment financing through online lenders like Crestmont Capital can be pre-approved within 24 hours and funded within 2-5 business days. Traditional bank equipment loans take 1-4 weeks. Term loans through online lenders follow a similar timeline to equipment financing - 24-72 hours for decisions, funding within a week. Traditional bank term loans and SBA term loans take considerably longer, often 2-8 weeks or more for SBA products due to their extensive underwriting requirements.
Equipment financing vs. term loan is not a matter of one being universally superior to the other. The right choice depends on the scope of your capital need, your credit profile, your flexibility requirements, and how long the asset you are purchasing will remain productive for your business.
Equipment financing excels when you have a specific purchase, value accessible qualification criteria, and want a financing structure built around the asset's useful life. Term loans excel when your project extends beyond the equipment itself, when you need capital flexibility, or when you are funding multiple purchases under a single agreement.
At Crestmont Capital, we help business owners make this decision every day. Our approach starts with understanding your business - not just your credit score. Whether you need equipment financing or a term loan, we structure the right product at the most competitive rate your profile supports, so you can focus on running and growing your business rather than navigating the complexities of commercial lending on your own.
Disclaimer: The information provided in this article is for general educational purposes only and is not financial, legal, or tax advice. Funding terms, qualifications, and product availability may vary and are subject to change without notice. Crestmont Capital does not guarantee approval, rates, or specific outcomes. For personalized information about your business funding options, contact our team directly.