Equipment Financing: How to Get the Machinery, Vehicles, and Tech Your Business Needs

Equipment financing is one of the most accessible forms of business funding because the equipment itself serves as collateral. Whether you need a commercial truck, manufacturing machinery, restaurant ovens, or IT infrastructure, equipment financing lets you spread the cost over time while putting the asset to work immediately.

Unlike unsecured loans that rely heavily on your credit history and financial statements, equipment loans are "self-collateralizing." This means the lender can repossess the equipment if you default, significantly reducing their risk and often resulting in better approval odds and lower rates for borrowers.

What Qualifies as Equipment?

Equipment financing covers virtually any tangible business asset with a definable useful life. The key criterion is that the asset must be used for business purposes and retain some value over time.

• Manufacturing and industrial machinery (CNC machines, lathes, presses, assembly equipment)
• Commercial vehicles (trucks, vans, trailers, forklifts, company cars)
• Construction equipment (excavators, bulldozers, cranes, concrete mixers)
• Agricultural equipment (tractors, combines, irrigation systems, processing equipment)
• Restaurant and food service equipment (ovens, refrigerators, fryers, POS systems)
• Medical and dental equipment (imaging machines, dental chairs, diagnostic equipment)
• IT and technology (servers, computers, networking equipment, specialized software)
• Office furniture and fixtures (desks, chairs, phone systems, security systems)
• Printing and graphics equipment (commercial printers, binding machines)
• Fitness and recreation equipment (gym machines, golf carts, amusement equipment)

How Equipment Financing Works

The equipment financing process is straightforward. You identify the equipment you need, apply with a lender, and if approved, receive funds to purchase the equipment. The equipment is then pledged as collateral until you pay off the loan.

Typical Loan Terms and Structures

Equipment loan terms typically range from 3 to 10 years, with the term often matching the expected useful life of the equipment. Shorter terms mean higher monthly payments but less total interest paid, while longer terms reduce monthly burden but increase total cost.

Note: The rates shown below are general market ranges and will vary significantly based on the lender, your creditworthiness, time in business, down payment amount, and current market conditions. Always obtain quotes from multiple lenders to understand your actual rates.

Loan-to-Value Ratios Explained

The loan-to-value (LTV) ratio determines how much you can borrow relative to the equipment cost. Most equipment lenders offer 80% to 100% LTV, meaning you may need a down payment of 0% to 20%.

Some lenders offer LTV ratios exceeding 100%, allowing you to finance soft costs like installation, training, shipping, and sales tax. This "soft cost financing" can be valuable when cash flow is tight, though it typically requires stronger credit profiles.

• 80% LTV: 20% down payment required, best rates, most common for used equipment
• 90% LTV: 10% down payment, competitive rates, standard for good credit
• 100% LTV: No down payment, available for strong applicants, new equipment
• 100%+ LTV: Includes soft costs, requires excellent credit (680+), limited availability

Equipment Loans vs. Equipment Leases

Equipment financing comes in two primary forms: loans and leases. With an equipment loan, you own the equipment from day one and build equity with each payment. With a lease, you rent the equipment and may have purchase options at the end.

The Application Process

Applying for equipment financing is typically faster and simpler than traditional bank loans. Many lenders provide decisions within 24-48 hours for straightforward applications.

• Quote or invoice for the equipment (new or used)
• Business financial statements (1-2 years for loans over $100,000)
• Business tax returns (may not be required for smaller amounts)
• Personal credit authorization (owner credit is usually checked)
• Bank statements (3-6 months, especially for newer businesses)
• Business license and formation documents

What Lenders Evaluate

Equipment lenders consider multiple factors when evaluating your application. While requirements vary, understanding these criteria helps you prepare a stronger application.

• Credit score: Most lenders require 550-650 minimum; best rates at 680+
• Time in business: 6 months minimum for many lenders; 2+ years for best terms
• Annual revenue: Often $50,000-$100,000 minimum, varies by loan size
• Equipment type: Lenders prefer equipment with strong resale markets
• Equipment age: Used equipment often limited to 5-10 years old
• Industry: Some lenders specialize in specific industries
• Cash flow: Ability to make payments without straining operations

Getting the Best Equipment Financing Terms

To secure the best terms on your equipment financing, take time to prepare your application and compare multiple offers.

• Shop multiple lenders including banks, online lenders, and equipment vendors
• Provide a down payment of 10-20% for better rates and approval odds
• Choose equipment with strong resale value for better LTV ratios
• Get quotes from multiple vendors to demonstrate fair market pricing
• Consider manufacturer financing programs, which often offer promotional rates
• Time your purchase around year-end for potential tax benefits
• Improve your credit score before applying if time permits