What equipment financing is
Equipment financing is a loan or lease used specifically to buy business equipment — vehicles, machinery, kitchen and restaurant gear, medical devices, computers, shop tools, or manufacturing lines. What makes it distinct from a general term loan is the collateral: the equipment you're buying secures the financing. Because the lender can repossess the asset if you default, equipment financing is generally easier to qualify for and often cheaper than an unsecured loan of the same size.
The structure keeps cash in your business. Instead of paying, say, $60,000 up front for a machine, you finance it and pay it off over the years it's actually generating revenue. The asset earns while you pay for it, rather than draining your working capital in one hit. That matching of cost to useful life is the core logic of the product.
Equipment financing comes from banks, equipment-focused lenders, online lenders, and often the equipment dealers and manufacturers themselves (dealer or vendor financing), which can be convenient and competitive.
How it works, and financing vs. leasing
With an equipment loan, you borrow to purchase the asset, own it from day one (subject to the lender's lien), and make fixed payments over a term usually tied to the equipment's expected useful life. When you finish paying, the lien is released and you own it free and clear. Lenders often finance most of the purchase price, sometimes requiring a down payment of roughly 10% to 20%, though some offer up to 100% financing.
Leasing is the alternative. You pay to use the equipment over a term without owning it up front. At the end, depending on the lease type, you may return it, renew, or buy it out (often for a small residual on a capital-style lease, or fair-market value on an operating lease). Leasing typically means lower upfront cost and easier upgrades — useful for technology that goes obsolete quickly — but you don't build ownership, and the long-run cost can be higher.
The rule of thumb: finance (buy) equipment you'll use for years and that holds value; lease equipment that dates quickly or that you'd rather swap out regularly. For tax treatment of either path, talk to your accountant — depreciation and expensing rules can materially change the math.
Illustrative rates, terms, and amounts
These are illustrative ranges, not quotes — actual pricing depends on your credit, the equipment, the down payment, and the lender. Rates for well-qualified borrowers often land somewhere in the range of 6% to 25% APR, with the newer, more resellable equipment and stronger credit earning the lower end. Because the asset serves as collateral, rates frequently beat an unsecured term loan for a comparable borrower.
Terms are typically set to the equipment's useful life — commonly 2 to 7 years — so you're not still paying for a machine long after it's worn out. Amounts range from a few thousand dollars for small tools up to hundreds of thousands or more for heavy machinery and commercial vehicles.
A simple illustrative example: financing a $60,000 piece of equipment at a 12% APR over 5 years produces a monthly payment near $1,335 and total repayment around $80,000. Compared with paying $60,000 in cash, you preserve working capital and spread the cost across the years the equipment is earning — at the price of roughly $20,000 in interest over the term. Watch for documentation or origination fees, and check whether there's a prepayment penalty if you might pay it off early.
Who it fits and how to qualify
Equipment financing fits any business making a defined asset purchase where paying cash would strain working capital: a contractor buying a truck or a lift, a restaurant replacing a walk-in cooler or a full kitchen line, a clinic acquiring diagnostic equipment, a manufacturer adding a machine, or a shop financing tools. If it's a tangible asset with a useful life of years, this is usually the purpose-built product.
Qualification is generally more accessible than an unsecured loan because the equipment is collateral. Illustrative, lender-dependent requirements often include: a personal credit score commonly 600+ (higher for banks, lower for some online and vendor lenders), 6 months to 2+ years in business, and revenue sufficient to cover the payment. Newer businesses and weaker credit can sometimes still qualify with a larger down payment.
Expect to provide a quote or invoice for the specific equipment, business bank statements, basic business details, and — for larger amounts — financial statements or tax returns. Because the lender is underwriting the asset as well as the business, a clear, resellable piece of equipment strengthens your application.
Honest pros and cons
The advantages are strong. You preserve cash and working capital instead of sinking it into one purchase. The equipment itself is the collateral, so qualification is often easier and rates lower than an unsecured loan. Terms match the asset's useful life, so payments align with the revenue the equipment produces. Approval is usually faster than an SBA loan, and there may be tax benefits (depreciation or expensing — confirm with your accountant). You build business credit as you repay.
The drawbacks: the financing is tied to a specific asset, so it can't be used as general working capital. You'll pay more over time than paying cash, because of interest. A down payment is often required. The lender holds a lien on the equipment and can repossess it if you default. And financing equipment that becomes obsolete quickly can leave you paying for something with little remaining value — one reason leasing is sometimes the smarter path for fast-depreciating technology.
When equipment financing is the right choice
Choose equipment financing when your need is a specific, tangible asset with a multi-year useful life, and paying cash would drain the working capital you need to run the business. It's almost always cheaper than putting equipment on a revenue-based advance or a general term loan, because the collateral lowers the lender's risk — and the term naturally matches the asset's earning life.
If you're financing an asset with a very long life, especially heavy equipment or anything bundled with real estate, an [SBA loan](/resources/sba-loan-guide) — particularly the 504 program — may beat a conventional equipment loan on rate and term. If your need is general working capital rather than a single asset, a [line of credit](/resources/business-line-of-credit-guide) or a [term loan](/resources/business-term-loan-guide) fits better. And if a piece of critical equipment fails and you need a replacement funded in 24 to 48 hours — faster than most equipment lenders move — a revenue-based advance may be the only option on that timeline, at a higher cost; our [factor rate explainer](/resources/what-is-a-factor-rate) and [full financing landscape](/resources/types-of-small-business-financing) cover that trade-off.
Commera advises across equipment financing, term loans, lines of credit, SBA referrals, and revenue-based advances. Tell us what you're buying and how fast you need it, and we'll match you to the structure that costs the least for your situation — before you sign anything.