Equipment Financing: Loans, Leases & Qualification Requirements
Equipment financing lets you acquire machinery, vehicles, and technology with the equipment itself as collateral—making it easier to qualify than unsecured loans.
Michael Chen, CFA
Business Finance Expert
Updated March 23, 2026 • 10 min read
Quick Answer
Equipment financing lets you purchase or lease business equipment with the equipment itself serving as collateral. This makes it one of the most accessible forms of business financing — even for newer businesses. You can typically finance 85-100% of equipment cost at rates from 6-20% APR, with terms matching the equipment's useful life (2-7 years). Most lenders require at least 1 year in business and a 600+ credit score.
Equipment Financing at a Glance
Loan Amounts
$5,000 - $5 million+
Terms
1-7 years (matches equipment life)
Down Payment
0-20% typical
Credit Score
600+ (varies by lender)
Lease vs. Buy: A Detailed Comparison
Choosing between an equipment loan and a lease is one of the biggest decisions you'll make. Both have distinct financial implications for your cash flow, taxes, and balance sheet. Here's how they compare across every major factor.
| Factor | Equipment Loan (Buy) | Equipment Lease |
|---|---|---|
| Ownership | You own the equipment outright after payoff | Lender retains ownership; you return, buy out, or upgrade at end of term |
| Down Payment | 10-20% typically required | Often $0 down — first and last month's payment only |
| Monthly Cost | Higher payments, but building equity | 15-30% lower monthly payments than loans |
| Tax Benefits | Section 179 deduction (up to $1.25M in 2026) + interest deduction + depreciation | Entire lease payment is deductible as a business expense |
| Balance Sheet | Equipment listed as asset; loan as liability | Operating leases may be off-balance-sheet (ASC 842 applies to larger companies) |
| End-of-Term Options | Full ownership — sell, trade in, or keep using | $1 buyout, fair market value purchase, return, or upgrade to new equipment |
| Total Cost Over Time | Lower total cost if equipment has a long useful life | Higher total cost due to financing premiums and no residual value |
| Best For | Equipment with 5+ year useful life (heavy machinery, vehicles, manufacturing) | Technology, medical devices, or any asset that depreciates quickly or needs frequent upgrading |
Pro tip: If the equipment will hold its value and you plan to use it for 5+ years, buying almost always wins financially. If the technology will be outdated in 2-3 years, leasing gives you flexibility to upgrade without a loss on resale.
Equipment Financing Requirements by Lender Type
Qualification criteria vary significantly depending on the type of lender. Banks offer the best rates but have the strictest requirements. Online lenders provide faster approvals with more flexibility. Captive finance companies — lenders affiliated with equipment manufacturers — fall somewhere in between.
| Requirement | Banks | Online Lenders | Captive Finance |
|---|---|---|---|
| Credit Score | 680+ | 600+ | 620+ |
| Time in Business | 2+ years | 1+ year | 1+ year |
| Annual Revenue | $100K+ | $50K+ | $75K+ |
| Down Payment | 10-20% | 0-10% | 0-15% |
| Equipment Quote | Required | Required | Provided by manufacturer |
| APR Range | 6-12% | 8-25% | 5-18% |
| Approval Speed | 2-4 weeks | 1-3 days | 3-7 days |
Types of Equipment You Can Finance
Nearly any tangible business asset with a defined useful life can be financed. Lenders evaluate equipment based on its resale value, expected lifespan, and how essential it is to your operations. Here are the most commonly financed categories.
Heavy Machinery & Manufacturing
CNC machines, lathes, milling equipment, injection molding machines, industrial presses, packaging equipment, welding systems. Typically financed over 5-7 years with strong residual values.
Vehicles & Fleet
Semi-trucks, delivery vans, company cars, box trucks, trailers, forklifts, utility vehicles. Fleet financing programs offer volume discounts and simplified management for 5+ vehicles.
Technology & Computers
Servers, workstations, networking infrastructure, POS systems, enterprise software licenses, cloud hardware. Leasing is popular here because technology depreciates rapidly — 2-3 year terms with upgrade options.
Restaurant & Food Service
Commercial ovens, refrigeration units, dishwashers, food prep equipment, brewing systems, walk-in coolers. Restaurant equipment financing often requires less documentation than other industries.
Medical & Dental Equipment
X-ray machines, MRI equipment, dental chairs, ultrasound systems, lab instruments, patient monitoring systems. Healthcare equipment lenders offer specialized programs with longer terms and competitive rates.
Construction Equipment
Excavators, bulldozers, cranes, concrete mixers, scaffolding, surveying instruments. Construction equipment holds value well, making it easier to finance with lower down payments and favorable terms.
How to Get Equipment Financing in 5 Steps
The equipment financing process is more straightforward than most business loans. Since the equipment itself secures the loan, lenders focus less on your overall financial profile and more on the equipment's value and your ability to make payments.
Identify the Equipment & Get a Quote
Work with your vendor to get a detailed invoice or purchase agreement. Lenders need to know the exact make, model, condition (new vs. used), and cost. Used equipment typically needs to be less than 10 years old for financing.
Check Your Qualification
Review your credit score, time in business, and annual revenue against the lender requirements above. Use our free qualification checker to see which lenders you're likely to qualify with before applying.
Compare Lenders & Apply
Get quotes from at least 3 lenders — a bank, an online lender, and the equipment manufacturer's finance arm. Compare APR, total cost, down payment, and term length. Use our equipment financing calculator to model different scenarios.
Submit Documentation
Prepare your business tax returns (2 years), bank statements (3-6 months), equipment quote, business licenses, and a personal financial statement. Online lenders often require less documentation and may only need bank statements and the equipment invoice.
Close & Receive Funds
Once approved, review the financing agreement carefully — confirm the interest rate, payment schedule, any prepayment penalties, and end-of-term options. Funds are typically sent directly to the equipment vendor. Online lenders can fund in 1-3 business days; banks may take 2-4 weeks.
Section 179 Tax Benefits for Equipment Purchases
The Section 179 deduction allows businesses to deduct the full purchase price of qualifying equipment in the year it's placed in service, rather than depreciating it over multiple years. For 2026, the deduction limit is $1.25 million, with a spending cap of $3.13 million.
This can dramatically reduce the effective cost of financed equipment. For example, if you finance a $100,000 piece of machinery and your business is in the 25% tax bracket, the Section 179 deduction saves you $25,000 in taxes in year one — making the effective equipment cost just $75,000.
Section 179 Quick Math
- Equipment Cost: $100,000
- Section 179 Deduction: $100,000 (full cost in year 1)
- Tax Savings at 25% bracket: $25,000
- Effective Net Cost: $75,000
Both purchased and financed equipment qualify, and equipment acquired through a capital lease (not an operating lease) is also eligible. Consult a tax professional to confirm eligibility for your specific situation. The equipment must be used for business purposes more than 50% of the time.
Qualification Requirements Checklist
- Time in Business: 1+ year preferred (some accept 6 months)
- Credit Score: 600+ personal, 50+ Paydex
- Revenue: $50K+ annual for most lenders
- Equipment Quote: Vendor invoice or purchase agreement
- Business Bank Account: Active account with consistent deposits
- Personal Guarantee: Required by most lenders for small businesses
New to business lending? Check if you qualify for SBA loans or explore startup loan options if you have less than 1 year in business.