Equipment Financing: Learn, Compare, Apply

Updated on August 2, 2024

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Equipment financing enables you to make large purchases on equipment, machinery or technology for your business and pay them off — with interest — over time. Equipment loans, unlike other small business loans such as term loans or business lines of credit, don’t require collateral because the equipment itself serves as collateral — if you default on your equipment loan payments, the lender can seize the equipment and recover the remaining cost. This security often means lender requirements, such as credit score and time in business, are a little more flexible, which is why equipment financing can be a good option for startups and business owners with lower personal credit scores.

Read on to learn more about how equipment financing works, how you can qualify for an equipment loan and to compare financing requirements of our top recommended equipment financing companies.

Ready to shop and apply? If you’re already familiar with the ins and outs of equipment financing, then you can jump right to comparing the best equipment financing lenders .

How Equipment Financing Works

Equipment financing can be a great option for businesses that need to make a big purchase in the form of equipment, machinery or even technology (e.g., a point-of-sale system). An equipment loan works much the same way a term loan does: you receive funding to put toward necessary business equipment and agree to terms to pay the equipment loan off over time and with interest.

Terms and rates vary by lender, of course, but typically equipment financing involves the following:

A down payment that ranges from 10% to 20%.
An interest rate between 8% and 30% (you may receive rates on the lower end if you offer a larger down payment).
A term length of anywhere from three to 10 years.

One key difference that sets equipment financing apart from other loan types is that it’s asset-based financing, which means the equipment itself serves as collateral to secure the loan. If you default on the loan, then the lender will seize the equipment and recover losses on the remaining value. Because of this, you may not need to sign a personal guarantee or provide additional collateral.

Pros and Cons of Equipment Financing

While there are many benefits to taking out an equipment loan to make a big purchase for your business, there are also some drawbacks to consider.

Pros	Cons
No additional collateral needed (typically).	Down payment may be required.
Make a large business purchase without impacting cash flow.	Lender may file a UCC lien.
Qualify, in some instances, with a lower personal credit score.	A personal guarantee may be required.
Own the equipment once the loan is paid off.	Prepayment penalties may apply.
Deduct the purchase price of eligible equipment from your taxes.	Business circumstances, equipment failure and/or technological advances may render the purchase useless before the loan term has ended.

Ideal Qualifications for Equipment Financing

Annual Revenue

Over $130K

Credit Score

600

Time in Business

Over 2 years

*Based on past Fundera customers

How to Qualify and Apply for Equipment Financing

If you believe equipment financing is the right option for you, follow these steps to determine whether you qualify and to prepare for your application.

Decide on the equipment you plan to purchase

As part of the application process, many lenders will want to know the equipment you plan to purchase and for what purpose. Some lenders may even wish to see a quote for the equipment. The more information you’re able to provide on your plan for the purchase, the more likely the lender is to seriously consider your application.

Evaluate your qualifications

To qualify for equipment financing, you will need to meet the lender’s minimum requirements for credit score, annual revenue and time in business. Again, these details will vary depending on the lender you choose.

While some lenders may consider applicants with lower scores, revenue or time in business than listed below, particularly those that cater to startups, generally the minimum requirements tend to fall within these ranges:

Credit score: 575 to 650.
Annual revenue: $100,000 to $250,000.
Time in business: Six months to one year.

Compare your lender options

Do your research and shop around to find the lenders with minimum qualifications you can meet and with terms that will work for you, including how soon you may be able to receive funding if your application is accepted. You can use our list of the best equipment loans below to get started.

Complete your application

Most applications for equipment financing can be completed online. If you gather the necessary documentation ahead of time, the online application process can move pretty quickly and smoothly. Before you begin the application, you’ll want to be sure you have the following information and documentation on hand, in additional to general details about your business:

Bank statements
Credit score and history
Equipment quote
Financial documents, such as a balance sheet, income statement and P&L
Tax records

Online lenders tend to process applications and fund loans faster than banks do, often within only a few days.

The Best Equipment Loans

If you’re ready to start shopping and comparing equipment loans, you may start your search with our list below.

Equipment Financing Company	Balboa Capital	Currency Finance	Crest Capital	National Funding	eLease
Best For	Larger funding amounts; faster funding than a bank	Equipment loans for startups; fast funding for larger equipment purchases	Equipment loans for highly qualified borrowers	Equipment loans for startup, minority-owned, women-owned and veteran-owned businesses	Equipment leasing; financing for startups
Funding Amount	Up to $500,000	Up to $500,000	Up to $1 million	Up to $150,000	$3,000 and up
Interest Rate	Undisclosed	Undisclosed	Undisclosed	Undisclosed	7% to 22%
Terms	Up to five years	Up to six years	Two to seven years	Two to five years	Two to six years
Funding Speed	As fast as the same day	Not specified	As fast as the same day	As fast as one day	As fast as one day
Min. Credit Score	620	625	“Good credit”	600	550
Min. Time in Business	One year	Two years	Two years	Six months	None
Min. Annual Revenue	$100,000	Not specified	Not specified	$250,000	None

Learn more about the top equipment financing companies.

National Funding

Best for: Equipment financing for startups

Apply Now

Frequently Asked Questions

Is financing equipment a good idea?

While it’s certainly not the right option for every business, equipment financing does tend to offer more flexible terms and qualifications and may offer faster funding speeds than other loan types. For many small businesses, the pros of equipment financing may well outweigh the cons.

Highly qualified businesses, however, may also want to explore a more traditional bank loan or an SBA loan as those may offer lower interest rates and more desirable terms.

Can startups qualify for equipment loans?

Yes, some startups may find they have better success qualifying for equipment financing over other loan types. Many equipment lenders are willing to be more flexible on their business loan qualifications since the loan is secured by the equipment itself.

What is the difference between equipment financing and equipment leasing?

Equipment leasing is another option for acquiring necessary business equipment without a total upfront cash outlay. There are some key differences, however, between equipment financing and equipment leasing. Once you’ve paid off an equipment loan, you own the equipment. With an equipment lease, you may have the option to purchase the equipment at the end of the term or enter into a new lease. In general, leasing equipment tends to be more costly over time than financing equipment. But leasing may make more sense if, say, you only need a large piece of equipment for a single project or a short amount of time.

Check out our equipment leasing vs. financing guide to determine which option is best for your small business.