Equipment financing is one of the most accessible forms of business funding, because the thing you are buying secures the loan. Here is how it works from quote to payoff.
How equipment financing works
With equipment financing, a lender funds the purchase of a specific asset — a vehicle, oven, excavator, server, or production machine — and the equipment itself serves as collateral. Because the loan is secured by something tangible the lender can recover, approval is often easier and rates lower than unsecured funding.
You typically repay in fixed monthly installments over the useful life of the asset, commonly two to seven years. When it is paid off, you own the equipment outright.
Financing vs. leasing
Financing means you are buying the equipment with borrowed money and will own it at the end. Leasing means you are paying to use it for a term, with an option to buy, return, or upgrade when the lease ends. Financing usually makes sense for equipment you will use for many years; leasing fits gear that becomes obsolete quickly or that you only need temporarily. Ask a tax professional how each option affects your specific situation.
What it costs and what is required
Many equipment loans cover 80 to 100% of the purchase price, sometimes with a down payment of 10 to 20%. Rates depend on your credit, time in business, and the equipment's resale value. Newer, widely-used equipment earns better terms than specialized gear that is hard to resell.
Lenders generally want to see:
- An equipment quote or invoice from the vendor
- A few months of business bank statements
- Your time in business and personal credit profile
- Sometimes a down payment, depending on the file
Is it the right choice?
Equipment financing is hard to beat when the asset directly generates revenue — a second truck that books more jobs, an oven that doubles output. The financing payment is offset by the income the equipment produces. It is less ideal for equipment that will not earn its keep, or when leasing would let you stay current with fast-changing technology. Because The Broker Shop puts 50+ lenders in competition, you can compare financing and lease offers before deciding. Checking your options won't affect your credit score.
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See What I Qualify For →The bottom line: Equipment financing uses the asset itself as collateral, making it easier to approve and cheaper than unsecured funding — ideal when the equipment generates revenue that covers its own payment.