Equipment financing pays for machinery, vehicles, technology and other business assets, with the equipment itself serving as the main collateral. Because the asset secures the deal, lenders and lessors approve more businesses, faster, than they would on an unsecured loan, and the term usually matches the useful life of what you are buying.
Loans and leases
You can finance equipment in two basic ways, and the choice affects ownership, taxes and your monthly payment.
Equipment loan. You own the equipment from day one, and the lender holds a lien on it until the loan is paid. Most lenders finance 80 to 100 percent of the cost. Ownership means you can claim depreciation, subject to your tax treatment.
Capital lease (also called a finance lease or $1 buyout lease). The lessor owns the equipment during the term, and you buy it for a nominal amount at the end. In practice this works much like a loan.
Operating lease (often a fair market value lease). The lessor owns the equipment, and at the end you return it, renew, or buy it at its market value. Payments are lower because you pay only for the portion of value you use. This suits technology and other equipment that loses value quickly or that you plan to replace often.
Sale leaseback. You sell equipment you already own to a lessor and lease it back. This turns paid off equipment into working capital.
Who offers equipment financing
| Provider | How they work | Typical speed | Best fit |
|---|---|---|---|
| Independent equipment lessor | Specializes in equipment, often by industry | 1 to 10 days | Most businesses, including newer ones |
| Captive finance company | Owned by the manufacturer, sells through dealers | Same day to a week | Buying a specific brand, promotional terms |
| Bank or credit union | Equipment loans and leases inside a wider relationship | 2 to 6 weeks | Established businesses with strong financials |
| Online lender | Fast decisions from bank data | 1 to 5 days | Smaller tickets, quick purchases |
| SBA lender | 7(a) or 504 for large equipment purchases | 4 to 12 weeks | Large projects that need long terms |
Equipment lessors are the specialists. Many focus on specific industries such as construction, transportation, medical, agriculture or manufacturing, and they know resale values and dealer networks in those markets. That knowledge lets them approve deals a generalist lender would decline.
Banks and credit unions often offer the lowest cost to established customers, and some have dedicated equipment finance divisions that compete directly with independent lessors.
For large purchases, the SBA 504 program finances heavy machinery with a useful life of 10 years or more, and SBA 7(a) covers equipment along with other uses. In Canada, the Canada Small Business Financing Program covers equipment and leasehold improvements up to a combined $500,000 through banks and credit unions.
How lenders underwrite the asset
Equipment underwriting has two halves: the equipment and the business.
The equipment. Lenders ask what it is worth today, how fast it loses value, and how easily they could resell it. Yellow iron (excavators, loaders), trucks and trailers, and standard machine tools have deep resale markets and get the best terms. Custom equipment, software and assets bolted into a building are harder to resell, so lenders want more down or a stronger business behind the deal. New equipment from a dealer is the simplest to finance. Used equipment and private party sales need an inspection or appraisal.
The business. Lenders still check that you can make the payments. They look at:
- Time in business: two years opens the most options. Many lessors work with businesses under two years when the owner has industry experience and the equipment holds value.
- Credit: personal credit for the owners and the business credit file. Strong credit can mean no down payment.
- Cash flow: bank statements for smaller deals; tax returns and financial statements for larger ones.
- Industry experience: a contractor with ten years in the trade is a lower risk buying an excavator than a first time owner.
Application only deals. For smaller amounts, many lessors approve on a one page application and a credit check, with no financial statements. The size limit for these programs varies by lender and by your credit.
Down payment and structure. Expect anywhere from zero to 20 percent down depending on credit, time in business and the asset. Some lessors take the first and last payment up front instead. Terms commonly run two to seven years, and longer for heavy equipment with a long useful life. Seasonal businesses can often arrange skip payments in slow months.
Pricing follows the same logic: strong credit, a long operating history and a liquid asset produce the lowest cost. Ask every provider for the total cost over the term, including documentation fees and any end of lease purchase price, so you can compare a loan and a lease fairly.
Process and timing
- Get a quote from the dealer or seller. The lender needs the equipment description, price and seller details.
- Apply. Smaller deals need a short application and credit check. Larger deals add tax returns, financial statements and bank statements.
- Approval. Lessors often decide in hours to a few days. Banks take longer.
- Documents. You sign the loan or lease agreement, provide proof of insurance and, for some deals, a down payment.
- Funding. The lender pays the dealer or seller directly, and the equipment is delivered.
Most equipment deals fund within one to two weeks. Used equipment, private sales and large purchases take longer because of inspections and appraisals.
Which lenders to approach
- Buying a major brand from a dealer: ask the dealer about captive financing and compare it with an independent lessor. Manufacturer promotions can be strong, but they are not always the lowest total cost.
- Under two years in business or credit still building: an industry focused equipment lessor is usually your best path.
- Established business with a bank relationship: ask your bank first, then compare one or two lessors.
- Large purchase with a long useful life: compare an equipment loan with SBA 504.
- Need cash from equipment you own: look for a lessor that offers sale leasebacks.
Search by place to find equipment lenders who know your industry and market, such as lenders in Pennsylvania or Alberta. If you need money for operating costs as well as equipment, pair the equipment deal with a line of credit.
Need help choosing a lender? Sign up through BusinessLoanBroker.ai to share your financing needs and get help with your next steps. You can also explore financing guides and tools before you apply.