Equipment Loan vs SBA 7(a) for Equipment: Which Is Better?
Compare dedicated equipment loans to SBA 7(a) loans for equipment purchases. Understand speed, rates, requirements, and when each makes sense.
When financing equipment, you have two strong options: a dedicated equipment loan or an SBA 7(a) loan. Both can work, but they serve different situations. Equipment loans are faster and simpler. SBA 7(a) loans are cheaper but slower.
Here is how to decide which path makes sense for your equipment purchase.
Quick Comparison Overview
| Factor | Equipment Loan | SBA 7(a) Loan |
|---|---|---|
| Typical APR | 8-30% | 11.5-16.5% |
| Down Payment | 0-20% | 10-20% |
| Term Length | 2-7 years | Up to 10 years for equipment |
| Approval Time | 1-7 days | 30-90 days |
| Credit Score Min | 600+ | 680+ |
| Time in Business | 1+ year | 2+ years typical |
| Collateral | Equipment itself | Equipment + possible PG |
| Max Loan Amount | Up to $5M | Up to $5M |
When Equipment Loans Win
Dedicated equipment financing has clear advantages in several situations:
- You need it fast — Equipment loans fund in days, not months. If the equipment is available now, you can act now.
- Credit is imperfect — Equipment loans accept lower credit scores because the equipment secures the loan.
- The equipment holds value — Lenders love equipment that retains value (trucks, CNC machines, medical devices).
- You want minimal paperwork — Equipment loans often require just bank statements and an equipment quote.
- Your business is newer — Many equipment lenders work with businesses at 1 year old.
The Speed Factor
If you are buying equipment at auction, from a business closing, or need to replace a broken machine immediately, SBA timing simply does not work. Equipment loans let you move in days.
When SBA 7(a) Wins
SBA financing makes more sense when:
- You can wait — If timing is flexible, SBA rates are typically lower.
- The equipment is expensive — For large purchases ($500K+), the rate difference adds up significantly.
- You need working capital too — SBA loans can bundle equipment with working capital in one loan.
- Long terms matter — SBA offers up to 10 years for equipment; most equipment loans cap at 5-7.
- You have strong financials — If you qualify for SBA, take advantage of the lower rates.
The Math: Same Equipment, Different Financing
Compare a $150,000 equipment purchase:
| Factor | Equipment Loan | SBA 7(a) Loan | Difference |
|---|---|---|---|
| Loan Amount | $150,000 | $150,000 | -- |
| APR | 15% | 13% | 2% lower with SBA |
| Term | 5 years | 7 years | SBA 2 years longer |
| Monthly Payment | ~$3,570 | ~$2,550 | SBA $1,020/mo less |
| Total Interest | ~$64,200 | ~$64,200 | Similar total cost |
| Time to Fund | 3-5 days | 45-60 days | Equipment 55+ days faster |
The Trade-Off
SBA gives lower monthly payments but similar total interest over a longer term. Equipment loans cost more monthly but you are done faster. Choose based on cash flow needs.
Down Payment and Cash Flow
Down payment requirements differ significantly between these options:
| Scenario | Equipment Loan | SBA 7(a) |
|---|---|---|
| New equipment, strong credit | 10-15% down | 10% down |
| Used equipment | 15-25% down | 10-20% down |
| Newer business | 20%+ down | May not qualify |
| Excellent financials | 0-10% down | 10% down (SBA minimum) |
Documentation Comparison
The paperwork burden differs dramatically:
- Equipment Loan: Bank statements (3-6 months), equipment invoice/quote, business license, possibly tax returns
- SBA 7(a): 2-3 years tax returns, financial statements, business plan, personal financial statement, SBA forms, landlord information, insurance documentation, and more
SBA Documentation Reality
SBA applications often require 20+ documents. If your paperwork is not in order, the process can stretch to 90+ days. Equipment loans close with a fraction of this documentation.
Real Scenarios
Scenario 1: Time-Sensitive Purchase
Situation: A competitor is selling their fleet of delivery trucks at 40% below market. The deal closes in 2 weeks.
Best choice: Equipment loan. There is no way SBA processes in time. The savings from the discounted equipment likely outweigh the slightly higher rate.
Scenario 2: Major Manufacturing Investment
Situation: You are adding $800,000 in manufacturing equipment for a planned expansion 6 months from now.
Best choice: SBA 7(a). With plenty of time and a large loan amount, the rate difference saves tens of thousands. Start the application now.
Scenario 3: Replacing Broken Equipment
Situation: Your main production machine failed. Every day without it costs $5,000 in lost revenue.
Best choice: Equipment loan. Speed is everything. Get the machine now, and consider refinancing into SBA later if rates improve.
Bottom Line
Neither option is universally better. Equipment loans win on speed, simplicity, and accessibility. SBA 7(a) wins on rates and terms for borrowers who can wait and qualify.
The Hybrid Approach
Some businesses use equipment loans for urgent or smaller purchases and reserve SBA for major planned investments. You do not have to choose just one forever.
Ready to explore your options?
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Read more →Important Disclosure
Not Financial Advice: The information provided in this article is for general informational purposes only and does not constitute financial, legal, or professional advice. You should consult with qualified professionals before making any financial decisions.
No Guarantee of Financing: Liminal Lending Co. is a business loan marketplace that connects borrowers with third-party lenders. We are not a lender and do not make credit decisions. Submitting an application does not guarantee approval or funding. Loan terms, rates, and availability vary by lender and are subject to borrower qualifications and lender criteria.
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Rate Information: Rates, terms, and fees mentioned in this article are estimates based on publicly available information and may not reflect current market conditions or specific lender offers. Actual rates depend on creditworthiness, business financials, and lender policies.
Information May Change: Financial markets, lending regulations, and economic conditions are subject to rapid change. While we strive to keep our content accurate and up-to-date, information in this article may become outdated. Always verify current rates, terms, program availability, and regulatory requirements with lenders and official sources before making financial decisions.