Equipment loans allow small businesses to finance machinery, vehicles, and technology with interest rates typically ranging from 4% to 30% APR, using the equipment itself as collateral, making them one of the most accessible financing options for business owners looking to grow without depleting cash reserves.
What You’ll Learn in This Guide
- How equipment financing works and why the equipment serves as built-in collateral, reducing lender risk and improving approval odds.
- The critical differences between equipment leasing vs. loans and which option saves you more money based on your business goals.
- Current interest rates, term lengths, and qualification requirements from top equipment loan providers.
- Step-by-step documentation needed to apply for commercial equipment loans and get pre-approved quickly.
- Tax advantages of equipment financing, including Section 179 deductions that can offset your total cost.
Equipment Financing by the Numbers
Understanding the scale and accessibility of equipment financing helps you see why it’s become a primary growth tool for businesses across industries.
The U.S. equipment finance industry reported $1.2 trillion in new business volume in 2023, according to the Equipment Leasing and Finance Association. That’s not just large corporations. 79% of U.S. businesses use some form of financing when acquiring equipment, based on the ELFA Annual Survey.
Small business equipment loan approval rates average 85% when the equipment serves as collateral, according to industry lending data. This higher approval rate stems from reduced lender risk. The equipment you’re buying secures the loan.
The average equipment loan term ranges from 3 to 7 years, with rates between 4% and 30% APR depending on creditworthiness, per the Federal Reserve Small Business Credit Survey. Businesses that finance equipment rather than pay cash retain 20% more working capital on average, according to the National Equipment Finance Association.
How Do Equipment Loans Work?
Equipment loans provide upfront capital to purchase business equipment. You repay the loan in fixed monthly installments while the equipment itself serves as collateral.
Here’s the basic structure. A lender approves you for a specific loan amount based on the equipment’s value, your creditworthiness, and your business financials. Most lenders offer 80% to 100% of the equipment cost, meaning you might need a down payment of 10% to 20%, though some lenders finance the full amount.
You purchase the equipment using the loan funds. The lender places a lien on the equipment until you’ve fully repaid the loan. Your monthly payment stays fixed throughout the term, typically 2 to 7 years depending on the equipment type and lender.
The loan-to-value ratio matters. If you’re buying a $100,000 piece of machinery and the lender offers 90% LTV, you’ll receive $90,000 and need to cover the remaining $10,000. Higher credit scores and stronger business financials often unlock 100% financing.
Because the equipment secures the loan, lenders face less risk. If you default, they can repossess and sell the equipment to recover their funds. This structure explains why equipment loans typically have higher approval rates and lower interest rates compared to unsecured business loans.
Ready to see what equipment financing options you qualify for? Explore equipment financing solutions.
What Equipment Can Be Financed With a Loan?
Nearly any business-use equipment qualifies for financing. Lenders fund purchases across virtually every industry.
Heavy machinery and construction equipment: Excavators, bulldozers, cranes, loaders, and grading equipment.
Commercial vehicles: Delivery trucks, cargo vans, fleet vehicles, trailers, and specialty transport vehicles.
Medical and dental equipment: Diagnostic machines, imaging systems, surgical tools, dental chairs, and treatment equipment.
Restaurant and food service equipment: Commercial ovens, refrigeration units, point-of-sale systems, and prep equipment.
Manufacturing equipment: CNC machines, lathes, mills, conveyor systems, and production line equipment.
Technology hardware and software systems: Servers, networking equipment, computers, specialized software platforms, and telecommunications systems.
Agricultural equipment: Tractors, harvesters, irrigation systems, planting equipment, and livestock management tools.
Office furniture and fixtures: Desks, conference room setups, storage systems, and workspace equipment.
The equipment must serve a legitimate business purpose. Personal-use items don’t qualify. Lenders also prefer equipment that maintains resale value, since it serves as their collateral protection.
Some lenders specialize in specific equipment types. Captive lenders (manufacturer-backed financing) often provide the best terms for new equipment from their brand. Independent lenders offer more flexibility across equipment types and manufacturers.
Compare Top 8 Equipment Loan & Lease Options With Low Interest Rates and Flexible Terms
Different lender types serve different business needs. Understanding your options helps you secure better terms.
| Lender Type | Typical APR | Loan Amount | Term Length | Best For |
| Traditional Banks | 4%–13% | $25K–$5M | 2–7 years | Established businesses with strong credit |
| SBA 7(a) Loans | 5%–10% | Up to $5M | Up to 25 years | Long-term, low-rate financing |
| Online Lenders | 7%–30% | $5K–$500K | 1–5 years | Fast funding, flexible credit |
| Equipment Dealers | 6%–20% | Varies | 2–6 years | Manufacturer promotions |
| Credit Unions | 5%–12% | $10K–$500K | 2–7 years | Member-based benefits |
| Captive Finance (OEM) | 0%–15% | Equipment cost | 2–5 years | New equipment purchases |
| Alternative Lenders | 10%–30% | $10K–$1M | 1–5 years | Bad credit or startups |
| Leasing Companies | Varies | Equipment cost | 2–7 years | Off-balance-sheet financing |
Traditional banks offer the lowest rates but require strong credit (typically 680+) and established business history (at least 2 years). They move slowly. Expect 2 to 6 weeks for approval and funding.
Online lenders provide faster decisions, often within 24 to 48 hours, with funding in less than a week. They accept lower credit scores but charge higher rates to offset risk.
SBA 7(a) loans deliver excellent terms for qualified businesses. Rates stay competitive and terms extend up to 25 years for certain equipment types. The application process requires extensive documentation and takes longer.
Captive finance companies (manufacturer-backed lenders) sometimes offer promotional rates, including 0% APR for qualified buyers. These deals work best when you’re buying new equipment directly from the manufacturer.
Compare your options with a funding specialist. Schedule a free 10-minute consultation.
What Is the Interest Rate for Equipment Financing?
Equipment loan rates typically range from 4% to 30% APR. Your actual rate depends on several factors.
Credit score has the biggest impact. Business owners with scores above 700 qualify for the lowest rates (4% to 10% APR) from banks and credit unions. Scores between 620 and 699 see rates from 10% to 18% APR. Scores below 620 face rates of 18% to 30% or higher from alternative lenders.
- Time in business matters. Lenders prefer businesses operating for at least 2 years. Startups pay higher rates or need to provide additional collateral or personal guarantees.
- Equipment type affects rates. New equipment from established manufacturers receives better rates than used equipment or specialized machinery with limited resale markets. A new delivery truck gets better terms than a custom fabrication machine.
- Loan amount influences pricing. Larger loans ($100,000+) often secure better rates because they generate more revenue for lenders. Very small loans (under $10,000) may carry higher rates due to processing costs.
- Fixed vs. variable rates: Most equipment loans use fixed rates, keeping your payment consistent throughout the term. Some lenders offer variable rates tied to prime or SOFR (Secured Overnight Financing Rate), which can fluctuate with market conditions.
Rate Snapshot
Businesses with credit scores above 680 typically qualify for rates between 4%–10% APR. Scores below 600 may see rates from 15%–30% or higher.
You can improve your rate by increasing your down payment, strengthening your credit score before applying, or choosing a shorter loan term. Some lenders negotiate based on your business revenue or existing banking relationship.
Is Equipment Financing Better Than Leasing?
The answer depends on how long you’ll use the equipment and your business goals. Both options have distinct advantages.
| Factor | Equipment Loan | Equipment Lease |
| Ownership | You own the equipment | Lessor retains ownership |
| Down Payment | 10%–20% typical | Often $0 down |
| Monthly Payments | Higher | Lower |
| Tax Benefits | Section 179 deduction + depreciation | Lease payments deductible |
| End of Term | Asset is yours | Return, purchase, or upgrade |
| Balance Sheet | Asset + liability recorded | May be off-balance-sheet |
| Best For | Long-term equipment use | Technology that updates frequently |
Choose equipment financing when:
- You plan to use the equipment for its full useful life
- Building business assets matters to you
- You want to maximize tax deductions through Section 179 and depreciation
- The equipment retains strong resale value
- You prefer fixed payments with eventual ownership
Choose leasing when:
- Technology becomes obsolete quickly (computers, software, medical imaging)
- You want lower monthly payments to preserve cash flow
- Upgrading equipment every few years fits your business model
- Maintenance and warranty coverage matter (some leases include this)
- Off-balance-sheet treatment benefits your financial reporting
Construction companies typically finance heavy equipment because these assets last 10 to 20 years. Tech companies often lease computers and servers because they upgrade every 3 to 5 years.
Not sure which option fits your business? Talk to a financing specialist today.
How Much Can I Borrow for New Equipment?
Equipment loan amounts typically range from $5,000 to $5 million or more. Your borrowing capacity depends on several factors.
Most lenders use the equipment’s purchase price as the primary limit. They’ll finance 80% to 100% of the cost. If you’re buying a $200,000 excavator, expect loan offers between $160,000 (80% LTV) and $200,000 (100% LTV).
Your business revenue sets another boundary. Lenders want assurance you can handle monthly payments. Many require that your annual revenue equals or exceeds the loan amount. A business generating $500,000 annually might struggle to get approved for a $750,000 equipment loan.
Cash flow analysis matters more than revenue alone. Lenders review your bank statements to verify consistent deposits and manageable expenses. They want to see that monthly loan payments won’t exceed 20% to 30% of your cash flow.
Equipment type influences limits. New equipment from established manufacturers qualifies for higher loan amounts than used or specialty equipment. A new Caterpillar excavator gets better terms than a 10-year-old custom fabrication machine.
Credit strength affects both approval and amount. Strong credit (700+) opens access to larger loans and better terms. Lower credit scores (below 650) may cap your borrowing at $250,000 to $500,000, even if you need more.
Some lenders impose internal caps. Online lenders might max out at $500,000, while banks and SBA loans extend to $5 million. If you need more than $5 million, you’ll likely need multiple lenders or specialized equipment financing.
Loan-to-value considerations: Requesting 100% financing works best when you have excellent credit and strong financials. If your credit score sits below 680 or your business is newer than 2 years, expect to contribute a 10% to 20% down payment.
Can I Get an Equipment Loan With Bad Credit?
Yes. Equipment loans remain accessible even with challenged credit because the equipment serves as collateral.
Alternative lenders specialize in working with business owners who have credit scores below 650. Some accept scores as low as 550, though you’ll pay higher interest rates (typically 15% to 30% APR).
These lenders shift their focus to collateral value rather than credit history alone. A $100,000 piece of equipment provides security even if your credit score sits at 580. If you default, the lender repossesses and sells the equipment.
Revenue and cash flow matter more than credit for some lenders. Strong monthly deposits demonstrate your ability to make payments. Lenders want to see consistent revenue (often $15,000 to $25,000+ monthly) and at least 3 to 6 months in business.
Time in business helps offset weak credit. Operating for 2+ years shows stability, even if past credit issues exist. Startups with poor credit face steeper challenges.
Improving your approval odds:
Provide a larger down payment (20% to 30%). This reduces lender risk and improves your chances.
Add a co-signer with better credit. Their creditworthiness supplements yours.
Choose newer equipment with strong resale value. Lenders feel more comfortable with assets they can easily liquidate.
Apply with multiple lenders. Different lenders have different risk tolerances. One rejection doesn’t mean universal rejection.
Consider equipment leasing instead. Lease approvals often have more flexible credit requirements than loans.
Bad Credit? You Still Have Options
Alternative lenders and equipment-secured loans focus on the collateral value rather than credit score alone. Expect rates between 15%–30% APR.
Struggling with credit concerns? Explore working capital loans designed for all credit profiles.
Are There Equipment Loans for Startups?
Yes, though startups face additional hurdles compared to established businesses.
The main challenge is limited operating history. Most traditional lenders want to see at least 2 years in business and consistent revenue. Startups can’t provide this proof.
Startup-friendly lenders include:
SBA microloans: The Small Business Administration partners with nonprofit lenders to offer microloans up to $50,000. These programs support startups and underserved businesses. Terms are favorable (6% to 9% APR typically), but loan amounts stay modest.
Community development financial institutions (CDFIs): These mission-driven lenders support businesses in underserved markets. They often work with startups that traditional banks decline.
Equipment manufacturers and dealers: Some offer in-house financing with relaxed requirements. If you’re buying directly from them, they want to make the sale happen.
Personal guarantee requirements: Almost all startup equipment loans require a personal guarantee. You’re agreeing to repay the loan personally if your business can’t. This puts your personal assets at risk.
Collateral beyond the equipment: Lenders might ask for additional security (real estate, vehicles, inventory) to supplement the equipment collateral.
Higher rates and down payments: Expect rates between 10% to 25% APR and down payments of 15% to 30%. Lenders charge more to offset the higher risk of lending to unproven businesses.
Improving startup approval odds:
Build business credit before applying. Open accounts with vendors who report to business credit bureaus (Dun & Bradstreet, Experian Business).
Maintain strong personal credit. Your personal score carries more weight when business history is thin.
Show strong revenue growth. Even 6 months of increasing sales demonstrates momentum.
Create a detailed business plan. Explain how the equipment drives revenue and growth.
Launching a new venture? Discover small business solutions for startups.
What Documents Are Required to Apply for an Equipment Loan for Commercial Vehicles?
Lenders need documentation to verify your business’s financial health and your ability to repay the loan. Requirements vary by lender type, but most ask for similar core documents.
- Business license and registration: Proof that your business is legally registered and authorized to operate. This includes your articles of incorporation, DBA registration, or business license.
- 3–6 months of business bank statements: Lenders review deposits, withdrawals, and average balances to assess cash flow. They want to see consistent revenue and manageable expenses.
- Personal and business tax returns (1–2 years): Tax returns verify income and provide a complete financial picture. Newer businesses might only need one year. Startups may skip this if they don’t have filed returns yet.
- Profit and loss statements: Current P&L statements (often month-to-date and year-to-date) show your revenue, expenses, and net income. Many lenders accept QuickBooks or similar accounting software exports.
- Equipment quote or invoice: The seller’s quote or purchase agreement for the specific equipment you’re financing. This document shows the equipment cost, specifications, and seller information.
- Personal identification: Driver’s license or state ID, Social Security number, and sometimes proof of address. Lenders need to verify your identity.
- Business plan (for startups): Newer businesses often need to provide a detailed business plan explaining how the equipment will generate revenue and support growth.
- Accounts receivable/payable aging reports (for larger loans): These reports show outstanding invoices you’re owed (AR) and bills you owe (AP). Lenders use them to assess working capital and financial stability. Typically required for loans above $100,000.
Additional documents some lenders request:
- Business debt schedule listing all current loans and payment obligations.
- Personal financial statement detailing your assets and liabilities.
- Proof of insurance for the business and sometimes the equipment.
- Voided business check for ACH payment setup.
- Commercial lease or proof of business location.
Gathering these documents before applying speeds up the process. Most online lenders can make decisions within 24 to 48 hours once they have complete documentation. Traditional banks take longer but follow similar requirements.
How Can I Get Pre-Approved for an Equipment Loan to Upgrade My Business Machinery?
Pre-approval gives you a clear borrowing limit and expected terms before you shop for equipment. It strengthens your negotiating position with sellers and speeds up the final purchase.
- Step 1: Gather documentation. Collect the documents listed in the previous section. Having everything ready before you start applying prevents delays.
- Step 2: Check your credit score. Pull your personal and business credit reports. Review them for errors and understand where you stand. This helps you target appropriate lenders.
- Step 3: Research lenders and compare terms. Look at traditional banks, online lenders, credit unions, and captive finance companies. Compare interest rates, loan amounts, term lengths, and fees.
- Step 4: Submit pre-qualification applications. Most lenders offer soft credit pull pre-qualification that doesn’t affect your credit score. Apply to 3 to 5 lenders to compare offers. Online applications typically take 10 to 20 minutes.
- Step 5: Review offers and negotiate terms. Compare the APR, monthly payment, total interest cost, and any fees (origination, processing, prepayment penalties). Some lenders negotiate on rates or fees, especially if you have competing offers.
- Step 6: Select your lender and complete full application. Once you’ve chosen the best offer, submit the full application. The lender will perform a hard credit pull and verify your documentation. Approval typically comes within 1 to 7 days depending on lender type.
- Step 7: Shop for equipment with confidence. Armed with pre-approval, you know exactly what you can afford. Sellers take you more seriously when you have financing secured.
- Step 8: Finalize and fund. After purchasing your equipment, submit the final invoice to your lender. They’ll fund the loan, typically within 1 to 3 business days. The equipment secures the loan, and you begin making monthly payments.
Pre-approval vs. pre-qualification: Pre-qualification uses basic information and soft credit pulls to estimate your borrowing potential. Pre-approval involves a more thorough review and comes closer to a final approval. Both are useful, but pre-approval carries more weight.
Get pre-qualified offers in minutes. Schedule your free consultation now.
Which Equipment Loan Options Allow Early Repayment Without Penalties for Business Owners?
Prepayment penalties can cost you 1% to 5% of your remaining loan balance if you pay off your equipment loan early. Not all lenders charge them.
Why prepayment penalties exist: Lenders earn money through interest payments over time. When you pay off a loan early, they lose that interest income. Penalties compensate for lost revenue.
These penalties appear more often with longer-term loans and lower interest rates. A 7-year loan at 6% APR might include a penalty. A 3-year loan at 15% APR less likely will.
Lenders that typically offer no prepayment penalty loans:
Online alternative lenders: Many online lenders skip prepayment penalties because they focus on fast funding and simple terms. Companies like Business Funds and Currency Capital often allow penalty-free early payoff.
Credit unions: Member-focused credit unions frequently waive prepayment penalties to benefit members. Check with local credit unions serving your area.
Some traditional banks: Policies vary by bank, but community banks and regional banks sometimes offer penalty-free equipment loans, especially to established customers.
SBA loans: Most SBA 7(a) loans allow prepayment without penalty, though some banks add small fees for loans paid off in the first 3 years. Always verify terms in your loan agreement.
How to negotiate prepayment terms: Ask directly before signing. “Does this loan include a prepayment penalty?” should be one of your first questions. If the answer is yes, ask if they can remove it or reduce it. Lenders sometimes negotiate this point, especially if you have strong credit or significant bargaining leverage.
Review the fine print: The prepayment clause appears in your loan agreement, often labeled “Prepayment Terms” or “Early Payment Provisions.” Read it carefully. Some lenders only charge penalties in the first year or two, then allow penalty-free payoff after that.
Calculate potential savings from early payoff: If you expect to pay off your loan early (from business profits, refinancing, or sale of the business), avoiding prepayment penalties saves significant money. On a $100,000 loan, a 3% penalty equals $3,000 if you pay off early.
Pro Tip
Always ask about prepayment penalties before signing. Some lenders charge 1%–5% of the remaining balance, while others offer penalty-free early payoff.
Are Equipment Loans Tax-Deductible?
Yes. Equipment loans provide several tax advantages that reduce your total cost.
Section 179 deduction allows you to deduct the full purchase price of qualifying equipment in the year you put it into service. For the current tax year, the deduction limit is $1,220,000 on up to $3,050,000 in equipment purchases. This immediate deduction significantly reduces your taxable income.
Example: You finance a $100,000 piece of equipment. Using Section 179, you deduct the full $100,000 in year one, potentially saving $21,000 to $37,000 in taxes (depending on your tax bracket).
Eligibility requirements for Section 179:
- Equipment must be purchased and placed in service during the tax year
- Equipment must be used for business purposes more than 50% of the time
- Your business must show a profit (you can’t use the deduction to create a loss)
Bonus depreciation provides another option. If your equipment doesn’t qualify for Section 179 or you’ve exceeded the limit, bonus depreciation allows you to deduct 60% of the equipment cost in year one (as of recent tax law). The remaining 40% depreciates over the equipment’s useful life using standard depreciation schedules.
Interest expense deductions: The interest you pay on your equipment loan is also deductible as a business expense. This applies throughout the life of the loan. On a $100,000 loan at 8% APR over 5 years, you’ll pay roughly $21,600 in interest. All of it is deductible.
Leases vs. loans: Lease payments are fully deductible as an operating expense, but you never own the equipment. Equipment loans allow you to own the asset, claim depreciation, and deduct interest. For most long-term equipment needs, loans provide better total tax benefits.
State and local tax considerations: Some states offer additional equipment-related tax incentives. Check with your state’s economic development office or tax authority.
Always consult a tax professional: Tax laws change. Your specific situation (business structure, income level, equipment type) affects which deductions provide the most benefit. A qualified CPA or tax advisor ensures you maximize available deductions while staying compliant.
Maximize your tax benefits while upgrading equipment. Explore long-term business loans.
Who Are the Best Equipment Loan Providers?
The best lender depends on your credit profile, equipment type, and funding timeline. Different lenders serve different needs.
Traditional banks: Bank of America, Wells Fargo, Chase, and U.S. Bank offer equipment loans with rates starting at 4% to 8% APR for well-qualified borrowers. They require strong credit (680+), at least 2 years in business, and detailed financial documentation. Approval takes 2 to 6 weeks, but terms are excellent.
Online lenders: Business Funds and Currency Capital provide fast decisions (often within 24 to 48 hours) and funding in less than a week. They accept lower credit scores (down to 600 or sometimes lower) but charge higher rates (8% to 25% APR). They work well when speed matters or credit is challenged.
SBA-approved lenders: Banks that participate in SBA 7(a) loan programs offer government-backed equipment financing. Rates stay low (5% to 10% APR), and terms extend up to 25 years for some equipment. The application process requires extensive documentation and patience. Check the SBA’s lender registry for approved banks in your area.
Credit unions: Local credit unions often provide competitive rates (5% to 12% APR) to members. They’re more flexible than big banks and may approve borrowers with slightly lower credit scores. You typically need to join the credit union (which may require living or working in a specific area or industry).
Captive finance companies: John Deere Financial, Caterpillar Financial, and other manufacturer-backed lenders offer financing for their own equipment. They sometimes run promotional rates (0% to 3% APR for qualified buyers) and understand the equipment’s value better than outside lenders. They only finance their brand.
Equipment dealers: Some dealers offer in-house financing or partnerships with specific lenders. Terms vary widely. Compare dealer financing against independent lenders to ensure you’re getting competitive terms.
BusinessFunds.com: We help you compare multiple lenders and equipment financing options in one place. Our specialists work with traditional banks, online lenders, and SBA programs to match you with the best terms for your situation.
Ready to find the right lender for your equipment needs? Explore all financing options.
How to Finance a Piece of Equipment: Step-by-Step
Here’s the complete process from identifying your equipment needs to making your first payment.
Step 1: Identify the equipment you need and get quotes. Determine exactly what equipment solves your business problem. Get quotes from multiple vendors. Compare prices, warranties, and delivery timelines.
Step 2: Determine loan vs. lease based on your goals. Decide whether you want to own the equipment (loan) or prefer lower payments with the option to upgrade (lease). Review the comparison table earlier in this article.
Step 3: Check your credit and gather documents. Pull your personal and business credit scores. Collect bank statements, tax returns, financial statements, and the equipment quote. Having everything ready speeds up approval.
Step 4: Compare lenders and terms. Apply for pre-qualification with 3 to 5 lenders. Compare APRs, loan amounts, term lengths, fees, and prepayment penalties. Don’t just focus on the monthly payment; calculate total interest cost.
Step 5: Apply and get approved. Submit your full application to your chosen lender. They’ll verify documentation and perform a hard credit pull. Approval times range from same-day (online lenders) to several weeks (banks, SBA loans).
Step 6: Receive funding and purchase equipment. Once approved, the lender funds the loan. Some send money directly to the equipment seller. Others deposit funds in your business account. You purchase the equipment using the loan proceeds.
Step 7: Equipment goes into service and payments begin. Put the equipment to work in your business. Your first payment typically comes 30 to 45 days after funding. Payments continue monthly until the loan is paid off.
Step 8: Maintain the equipment and keep records. Proper maintenance protects your investment and the lender’s collateral. Keep purchase records, maintenance logs, and payment receipts for tax purposes.
Can I Use My EIN to Get an Equipment Loan?
Your EIN (Employer Identification Number) alone is typically not sufficient to secure an equipment loan.
Lenders use your EIN to identify your business and pull your business credit report. That’s valuable. But most small business loans, including equipment financing, require a personal guarantee.
A personal guarantee means you’re personally responsible for repaying the loan if your business can’t. This puts your personal assets (home, savings, investments) at risk. Lenders require this because small businesses often lack the established credit and financial history to qualify based solely on business credentials.
When you can qualify with EIN only: Established businesses with strong business credit (usually 3 to 5+ years in operation, significant revenue, and excellent business credit scores) sometimes qualify for loans without personal guarantees. Large corporations and publicly traded companies typically don’t need personal guarantees. But most small businesses do.
Building business credit over time: You can work toward EIN-only financing by building your business credit profile. Open accounts with vendors and suppliers that report to business credit bureaus (Dun & Bradstreet, Experian Business, Equifax Business). Pay all bills on time. File your business tax returns. Maintain separate business bank accounts and credit cards.
After several years of strong business credit, some lenders will consider applications without personal guarantees. But this remains rare for equipment loans under $500,000.
Lenders that consider EIN-only applications: Some online lenders and alternative finance companies advertise EIN-only loans. Review terms carefully. These products often carry higher interest rates and smaller loan amounts than traditional equipment loans requiring personal guarantees.
Need flexible funding options? Discover business line of credit solutions.
What Credit Score Is Needed for an Equipment Loan?
Equipment loan credit requirements vary by lender type and loan amount. Here’s what different score ranges typically unlock.
| Credit Score Range | Approval Likelihood | Typical APR | Lender Type |
| 750+ (Excellent) | Very High | 4%–8% | Banks, Credit Unions |
| 680–749 (Good) | High | 8%–12% | Banks, Online Lenders |
| 620–679 (Fair) | Moderate | 12%–20% | Online/Alternative Lenders |
| 550–619 (Poor) | Lower | 20%–30% | Alternative Lenders |
| Below 550 | Challenging | 25%+ or Decline | Specialized Lenders |
Excellent credit (750+): You’ll qualify for the best rates from traditional banks and credit unions. Expect 4% to 8% APR, larger loan amounts, and minimal down payment requirements (often 10% or less). The application process moves smoothly.
Good credit (680–749): You have access to competitive rates from both banks and online lenders. Rates range from 8% to 12% APR. You might need a 10% to 15% down payment. Most equipment types are available.
Fair credit (620–679): Traditional banks become less accessible. Online lenders and alternative finance companies will work with you, but rates increase to 12% to 20% APR. Expect to provide a 15% to 20% down payment and show strong revenue.
Poor credit (550–619): Alternative lenders specializing in higher-risk loans become your primary option. Rates range from 20% to 30% APR. Down payments of 20% to 30% are common. The equipment’s collateral value matters more than your credit score.
Below 550: Equipment financing becomes very difficult. Some specialized lenders will consider your application if you have strong revenue, significant down payment (30%+), or additional collateral. Rates exceed 25% APR when available.
Business credit scores matter too: Lenders review both personal and business credit. Business credit scores come from Dun & Bradstreet (PAYDEX score), Experian Business (Intelliscore Plus), and Equifax Business. Strong business credit can offset weaker personal credit, especially for established businesses.
Other factors beyond credit score: Time in business, revenue, cash flow, equipment type, and loan amount all influence approval. A business owner with a 650 credit score but $500,000 in annual revenue and 5 years in business might get better terms than someone with a 700 score, $100,000 in revenue, and 1 year operating.
Is It Hard to Get an Equipment Loan?
Equipment loans are generally easier to obtain than unsecured business loans. The equipment itself serves as collateral, reducing lender risk.
Approval rates for equipment financing average 85% when you meet basic qualification requirements. Compare this to unsecured business loans, which approve at closer to 50% to 60% for small businesses.
Why equipment loans are more accessible:
Collateral protection: If you default, the lender can repossess and sell the equipment. This security makes lenders more willing to approve applications.
Clear purpose: The loan finances a specific asset that (presumably) generates revenue for your business. Lenders understand the use case better than general working capital.
Easier to underwrite: Lenders can value the equipment, assess its resale market, and calculate loan-to-value ratios. This straightforward analysis speeds decisions.
Multiple lender options: Banks, online lenders, credit unions, captive finance companies, and alternative lenders all offer equipment financing. More options mean better chances of approval.
What makes approval easier:
- Credit score above 650
- At least 1 to 2 years in business
- Consistent monthly revenue ($15,000+ for smaller loans, more for larger amounts)
- New equipment from established manufacturers
- Reasonable loan-to-value (80% to 90%)
- Complete documentation ready to submit
What makes approval harder:
- Credit score below 550
- Startup with less than 6 months operating history
- Inconsistent revenue or recent revenue decline
- Used or specialized equipment with limited resale value
- Requesting 100% financing with weak credit
- Missing or incomplete financial documentation
Tips to improve your chances:
Apply with the right lender type for your situation. Don’t waste time with traditional banks if your credit score is 600.
Provide a larger down payment. This reduces lender risk and shows your commitment.
Choose equipment with strong resale value. New trucks, tractors, and standard machinery approve faster than custom or outdated equipment.
Strengthen your financial documentation. Clean bank statements, current financial statements, and organized tax returns signal professionalism.
Consider a co-signer. A partner or family member with stronger credit can boost your approval odds.
See what you qualify for today. Get pre-approved for equipment financing.
Secured Equipment Loan vs. Unsecured: Which Is Right for You?
Most equipment loans are secured, meaning the equipment itself serves as collateral. Unsecured equipment loans exist but are less common and more expensive.
Secured equipment loans:
The lender places a lien on the equipment. If you default, they repossess it.
Interest rates range from 4% to 20% APR depending on credit and lender type.
Loan amounts can reach 100% of equipment value.
Approval is easier because collateral reduces lender risk.
You must maintain insurance on the equipment throughout the loan term.
Unsecured equipment loans:
No collateral required. Your personal and business creditworthiness alone qualify you.
Interest rates range from 10% to 40% APR, significantly higher than secured loans.
Loan amounts are typically smaller (often capped at $100,000 to $250,000).
Approval requires excellent credit (typically 700+) and strong business financials.
Processing can be faster since no equipment appraisal is needed.
When to choose secured: Most situations favor secured equipment loans. Lower rates, larger amounts, and easier approval make them the default choice. If you’re financing equipment anyway, using it as collateral costs you nothing extra while delivering better terms.
When to choose unsecured: Consider unsecured financing if:
- You’re buying used equipment that lenders won’t accept as collateral
- The equipment has low resale value
- You want to avoid the lender’s lien on your equipment
- You have excellent credit and want the fastest possible approval
- You’re financing soft costs (training, installation, software) alongside equipment
Most business owners choose secured equipment loans for better economics. Unsecured financing works best as a supplement or for non-equipment business expenses.
Equipment Term Loan Explained
An equipment term loan is a lump-sum loan used to purchase business equipment, repaid through fixed monthly payments over a predetermined period.
Structure: You receive the full loan amount upfront (the “term” refers to the repayment period). You make equal monthly payments combining principal and interest. At the end of the term, you own the equipment free and clear.
Typical term lengths: Equipment loans typically run 2 to 7 years, though some extend to 10 years for very expensive assets. The term should roughly match the equipment’s useful life.
Heavy machinery (excavators, bulldozers): 5 to 7 years
Commercial vehicles (trucks, vans): 3 to 5 years
Technology equipment (computers, servers): 2 to 3 years
Medical equipment: 5 to 7 years
Manufacturing equipment: 5 to 7 years
Fixed payment schedule: Most equipment term loans use fixed rates and fixed payments. Your payment on day one equals your payment in the final month. This predictability helps with budgeting and cash flow planning.
How term length affects cost: Longer terms mean lower monthly payments but higher total interest cost. Shorter terms increase monthly payments but save money on interest.
Example: $100,000 equipment loan at 8% APR
3-year term: $3,134 monthly payment, $12,824 total interest
5-year term: $2,028 monthly payment, $21,680 total interest
7-year term: $1,551 monthly payment, $30,284 total interest
The 7-year loan costs $17,460 more in interest than the 3-year loan, but saves $1,583 per month in payment size.
Balloon payments: Some equipment term loans use balloon structures. You make smaller monthly payments throughout the term, then a large final payment (the “balloon”) to pay off the remaining balance. These loans work when you expect a large cash infusion (selling the business, major contract, seasonal revenue spike). Most equipment buyers prefer standard amortizing loans with equal payments.
Looking to expand your operations? Explore business expansion loans.
Choosing the Right Equipment Loan for Your Business
Equipment financing opens access to machinery, vehicles, and technology that drive growth without depleting your cash reserves.
The decision between loan and lease depends on how long you’ll use the equipment and whether ownership matters. Loans build business assets and offer better long-term economics. Leases provide lower payments and easy upgrades.
Interest rates span a wide range (4% to 30% APR) based on your credit, business strength, and lender type. Strong credit unlocks the best terms from traditional banks. Alternative lenders serve business owners with credit challenges.
Tax benefits add significant value. Section 179 deductions, bonus depreciation, and interest expense deductions reduce your net equipment cost by thousands or tens of thousands of dollars. Work with your tax advisor to maximize these advantages.
Compare multiple lenders before committing. Online lenders offer speed. Banks provide low rates. Credit unions balance both. Taking time to shop saves money over the life of your loan.
Equipment loans remain one of the most accessible financing options for small businesses because the equipment serves as collateral. This structure protects lenders while giving you the tools to grow.
Don’t let equipment costs hold your business back. Schedule your free consultation with a funding specialist today.
Frequently Asked Questions About Equipment Loans
How do equipment loans work?
Equipment loans provide upfront capital to purchase business equipment, which you repay in fixed monthly installments while the equipment serves as collateral.
What equipment can be financed with a loan?
Nearly any business-use equipment qualifies, including machinery, vehicles, technology, medical devices, and restaurant equipment.
What is the interest rate for equipment financing?
Equipment loan rates typically range from 4% to 30% APR depending on your credit score, time in business, and lender type.
Is equipment financing better than leasing?
Financing is better if you want to own the equipment long-term. Leasing is better for equipment that needs frequent upgrades.
How much can I borrow for new equipment?
Most lenders offer equipment loans from $5,000 to $5 million, with loan amounts typically covering 80% to 100% of equipment value.
Can I get an equipment loan with bad credit?
Yes. Alternative lenders offer equipment loans for credit scores as low as 550, though interest rates will be higher.
Are there equipment loans for startups?
Yes. Some online lenders and SBA microloan programs offer equipment financing to startups with limited business history.
What documents are needed for approval?
Common requirements include bank statements, tax returns, business licenses, equipment quotes, and personal identification.
Are equipment loans tax-deductible?
Yes. You may deduct the full purchase price under Section 179 and claim interest expense deductions.
Who are the best equipment loan providers?
Top providers include traditional banks, SBA-approved lenders, online lenders like Business Funds, and specialized equipment finance companies.
What credit score is needed for an equipment loan?
Most traditional lenders require a minimum score of 650 to 680, while alternative lenders may accept scores as low as 550.
Is it hard to get an equipment loan?
Equipment loans are generally easier to obtain than unsecured loans because the equipment itself serves as collateral.
Can I use my EIN to get a loan?
Most lenders require a personal guarantee in addition to your EIN, especially for newer businesses.
How do I finance a piece of equipment?
Get equipment quotes, compare loan and lease options, gather documentation, apply with multiple lenders, and choose the best terms.
